China’s cash crunch appears to have drawn to a close, with money rates falling back to normal levels after the central bank steadied the market with a pledge to backstop ailing lenders and provide liquidity injections to support the financial system.
The seven-day bond repurchase rate, a key gauge of short-term liquidity in China, fell to 3.98 per cent yesterday. It marked the seventh consecutive daily decline since rates hit double digits two weeks ago. It was also the first time since late May that the repo rate fell below 4 per cent, a level that usually marks the high end of its trading range.
Last week, after money rates rose and banks began to shy away from lending to each other, the central bank promised to provide money to cash-strapped lenders. With more short-term paper maturing this week, it also allowed for a small de facto liquidity injection in the broader money market.