Beijing cash boost flags concerns at the top on growth
Injection of funds calms market nerves, pointing to a balanced approach on need to reduce risks
Beijing yesterday stepped in to rescue the troubled stock and interbank markets with the first cash injection since February, in a sign the leadership would balance risk control and growth pace in directing the economy.
The People's Bank of China pumped 17 billion yuan (HK$21.3 billion) into the money markets through reverse bond repurchase agreements, or reverse repos, for the first time since February 7. The move sent interest rates on the interbank market lower while boosting stocks, which dropped to a three-week low on Monday.
"The move sent a clear message to investors that the top officials are also worried about a sharp slowdown in the economy," said Dong Jun, a Shanghai-based hedge fund manager. "They will give priority to risk control but they will also fine-tune policies to ensure the economy is on a growth track."
The Shanghai Composite Index added 13.76 points, or 0.7 per cent, to end at 1,990.06 yesterday, after sinking 1.72 per cent on Monday to its lowest close since July 9.
The new leadership is determined to de-leverage the economy, tighten monetary policies to force commercial banks to refrain from a lending spree and curb shadow banking.
At the weekend, Beijing announced a national audit of government debts, sparking further liquidity concerns on the stock market as investors braced for a selldown of state-held stakes by the authorities to repay loans.
The country's banking system is still recovering from a severe cash crunch in mid-June, when interest rates on the interbank market surged to record highs.
The central bank refused to ease the monetary policy at the time despite growing calls from banks to cut the reserve requirement ratios or conduct reverse repo operations to inject fresh funds into the money markets.
The additional 17 billion yuan of cash injected into the markets yesterday was priced high, with a seven-day repo rate of 4.4 per cent, above the guidance rate of 3.35 per cent.
"Another severe cash crunch is unlikely," said Gu Weiyong, chief investment officer of Ucon Investment Management. "But the investment community has got the drift of the recent policy direction. The government will continue to curb risks but will take necessary steps to ensure the economy is growing."
The China Securities Regulatory Commission has yet to announce when it will reopen the initial public offering market. It had halted new share sales in October.
The regulator told a meeting of brokerage executives in June that it would lift the IPO ban, but a market slide soon after prompted it to back down.