Chinese Cash Rates Rise Government Injects Emergency Cash

China’s central bank has announced an emergency injection of liquidity into financial markets to avert a short-term credit crunch.

The People’s Bank of China has been progressively tightening financial conditions over recent months to rein in excessive lending growth in the economy, and had cancelled its usual daily “open market operations” – which push money into the markets – in recent days.

But as a result, interbank lending rates – a key measure of market stress – had shot up, raising fears of a crunch.

Echoing similar measures it took in June, the People’s Bank of China took the unusual step of announcing, via Weibo, the Chinese equivalent of Twitter, that it had carried out a short-term liquidity operation, or SLO. Trading was also extended by an extra half an hour, to allow banks to benefit from the measure.

No details were published about the scale of the SLO, or which banks had been involved; but the liquidity injection evoked memories of the crisis measures taken by central banks in Europe and the US in the wake of the collapse of Lehman Brothers, as markets threatened to dry up.


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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza