Central Bank Intervention Boosts Market

With interbank lending rates climbing due to pressure at month-end for fund redemption, investors have been concerned that the central bank may steer the market into a similar situation as experienced in June. At that time the central bank held back from injecting cash into the system despite the fact that money rates were rising. This led banks to hold back on inter-bank lending which sent money market rates to over 20 percent – an unprecedented level. To alleviate the problem, the central bank made emergency liquidity provisions available to cash-strapped banks. The message from the central bank was that the cash squeeze served as a warning to lenders to improve the management of their liquidity while reining in overall credit growth.

Official statements over the past few months have indicated that authorities are taking action to ward off financial risks, while at the same time promoting stable development of China’s economy in the second half of 2013. Analysts are generally of the opinion that these statements reveal no sense of urgency and that the current stance of authorities is likely to prevail for the remainder of the year.