Chinas central bank usually releases extra money to ensure the countrys cash machines dont dry up during the Lunar New Year holiday, which this year runs from Feb. 7 to Feb. 13, a time when Chinese people often go on shopping sprees and hand out packets containing yuan notes as gifts to friends and relatives.
But its cash injection this year is noticeable both for its scale and because it suggests the PBOC is trying to ease monetary policy in a way designed to be more flexible and discreet than using the traditional tools available to central banks, such as interest rate cuts.
Around a year ago, the PBOC cut the amount banks must hold in reserve at the central bank--the so-called reserve requirement ratio--by half a percentage point as a way of releasing more money into the system. A similar cut to the ratio, which currently requires banks to set aside 17 .5 % of their reserves, would free up around 678.5 billion yuan for fresh lending this year, based on estimates by The Wall Street Journal.
But analysts said the PBOC might now be shying away from such direct action, to avoid exacerbating concerns about the economy that might put further downward pressure on the countrys currency. The yuan has fallen around 1.3% against the dollar so far this year, after dropping 4.5% last year.
Capital outflows from China hit $500 billion last year, equivalent to 13% of the countrys foreign-exchange reserves, as investors looked for better returns overseas amid growing questions about Beijings economic management. Chinas foreign-exchange reserves fell by a record $107.92 billion from a month earlier to $3.330 trillion at the end of December, marking the latters lowest level in three years.
The key factor at the moment is capital outflows, said Alessandro Theiss, an economist with Oxford Economics Ltd. These are reshaping the monetary policy setting.
Using cash injections as a way of easing policy could also give the PBOC more flexibility to change direction if economic conditions change, analysts said. Short-term lending tools such as reverse repurchase agreements can allow it to more nimbly adjust liquidity in the financial system than using blunter instruments such as broad rate cuts and reductions in bank reserve requirements.
Still, the PBOCs use of cash injections reflects its continuing top-down approach to allocating resources and capital, which is the opposite of Beijings often-stated pledge to let the market play a more decisive role in the economy, said Chaoping Zhu, an economist at the Singapore-based brokerage UOB-Kay Hian Holdings.
Given the state of the economy, there should have been at least a cut in the reserve requirement [by now], if it were not for concerns about the yuans exchange rate, Mr. Zhu said. At the end of the day, be it conventional or alternative monetary easing, it tells people the same story: the economy is weak.
Meanwhile Chinese regulators Thursday ramped up a crackdown on underground banks and illegal transfers of foreign exchange, although it stopped short of imposing new restrictions on forex purchases.
The State Administration of Foreign Exchange also said Chinas foreign currency reserves remain the largest in the world, and its external debt risk is controllable and in order.
There is no change to the policy of allowing individuals to purchase up to $50,000 per year, it said.
Mark Magnier, Chiun-Wei Yap and Pei Li in Beijing contributed to this article.
(END) Dow Jones Newswires
Copyright (c) 2016 Dow Jones amp; Company, Inc.
(Writes through with context, details, comment)
ALMATY Jan 21 Kazakhstans central bank announced its return to the money market on Thursday and said it planned no restrictions on foreign exchange operations while expecting no big tenge exchange rate movements in the nearest future.
But the tenge continued to slide alongside oil and the Russian rouble as some in the market said more needed to be done in order to rebuild trust in the regulator after several unexpected policy moves.
Overnight repo rates briefly soared above 500 percent and then remained in high double digits at the end of last year after the central bank surprised the market by reducing its short-term lending to banks to a bare minimum in order to ease pressure on the tenge.
From December 24, the National Bank of Kazakhstan (NBK) started increasing its money market operations, bank chairman Daniyar Akishev told a briefing. The average overnight rate has fallen to about 40 percent in the last few trading days from 80 percent at the beginning of the month.
Akishev said the central bank would now publish daily updates on liquidity, which it expected would rise later this month from 232 billion tenge (about $718 million) as of Wednesday.
The tenge has dropped 11 percent against the dollar this month, putting its overall losses at more than 50 percent since the authorities abandoned their pegged exchange rate policy last August.
Akishev said that with the price of oil, Kazakhstans main export, at below $30 per barrel, most of the negative expectations regarding the currency had already materialised.
We see the likelihood of substantial exchange rate movements in the nearest future as insignificant, he said.
If oil prices fall from $30 to $20 per barrel, we will only lose $10 per barrel which will not lead to a sharp fall in export revenues that could affect the foreign exchange market balance, Akishev said, adding that the country has already lost $82 per barrel over the last two years.
However, the bank has no exchange rate targets and will continue its free float policy, he added.
We understand that under the freely floating exchange rate (policy), daily exchange rate moves take place in both directions, which depend on external factors, primarily oil prices and the Russian roubles exchange rate.
The rouble, which the tenge has been closely tracking in the last few months, hit a fresh all-time low on Thursday, dropping over 3 percent against the dollar.
MARKET EXPECTS FURTHER WEAKENING
The central bank also announced on Thursday that it would make retail deposits in local currency more attractive.
Kazakhstans deposit insurance fund, controlled by the regulator, will raise the interest rate ceiling on retail tenge deposits to 14 percent from 10 percent, while cutting the ceiling on foreign currency deposits to 2 percent from 3 percent from Feb. 1.
But non-deliverable forward contracts still show the market expects the tenge to continue its slide and fall to 423-432 per dollar within six months.
Anuar Ushbayev, managing partner at investment firm Tengri Partners, said the key problem, aside from oil prices, was a lack of public trust in the regulator as a result of several sharp policy changes over the last few months.
The announced increase in the cap for tenge interest rates will do very little to attract depositors on the margin, Ushbayev said. And lowering the dollar interest rate ceiling may spur an outflow of deposits into cash or deposit boxes instead.
Ushbayev said fears of foreign currency deposit freezing and bank runs have already started circulating among the public. Akishev on Thursday said the regulator planned no restrictions on deposit withdrawals or currency exchange. (Reporting by Olzhas Auyezov and Mariya Gordeyeva; Editing by Raissa Kasolowsky)
China Markets Live - Stock rout worsens as Hang Seng hits fresh three-year low; Shanghai shares tumble
Welcome to the SCMP's live China markets. The intense volatility in Chinese markets into 2016 due to the implementation of the circuit breaker has roiled world financial markets. Investors are increasingly focused on the broader question of how this episode might affect the wider economy of the country. We'll bring you the key levels, trading statements, price action and other developments as they happen.
Here is a summary of market movements so far today:
- Hong Kong's Hang Seng extends Wednesday's sell-off and ends down 1.8 per cent at 18,542.15, the lowest settlement since June, 2012
- Shanghai Composite tumbles 3.2 per cent to 2,880.80, the lowest close since Dec., 2014
- Shenzhen Composite sinks 4 per cent at close
- PBOC injects 400 billion yuan into money markets via reverse repos, largest of its kind in three years
4:54 pm By Xie Yu
Statistics show A-shares investors are tightening their purse strings for more clues. The outstanding margin lending balance through brokerages, recorded by the Shanghai and Shenzhen bourses stood at 991.56 billion yuan (HK$1.18 trillion) by Wednesday, marking the lowest level since October 22.
4:34 pm By Laura He
Asian stock markets mostly declined Thursday. Japan's Nikkei Average slid 2.4 per cent to close at 16,017.26, after falling into bear market territory on Wednesday. South Korea's Kospi Composite lost 0.3 per cent to 1,840.53, while Australia's Samp;P/ASX 200 finished modestly higher at 4,864.00, up 0.5 per cent.
In the oil market, crude futures dropped further in Asian trade, after WTI crude plunged to the lowest level in nearly 13 years on February contract's expiration day on Wednesday. March WTI crude, the current front-month contract, lost 0.5 per cent to US$28.18 a barrel. March Brent crude dropped 0.7 per cent to US$27.7 a barrel.
4:24 pm By Xie Yu
All the sectors on A-shares market saw a broad-based decline. Utilities, transport and aerospace tech companies recorded the biggest losses.
In Hong Kong, mining companies and automotive manufacturers were the biggest losers.
4:20 pm By Xie Yu
Investors should stay prudent under current market conditions and "do not rush to catch the falling knives", China International Capital Corporation said a note on Thursday.
"The brief rebound earlier this week made some people believe the market is reviving and it was time to buy cheap (stocks). But actually the situation is turning worse, not better, with the oil price and Hong Kong dollar falling. The global markets are panicking as a big sell-off is sweeping Asian (Hong Kong and Japan in particular), European, and US markets."
4: 16 pm By Xie Yu
The Hang Seng Index finished 1.82 per cent lower, or 344.15 points lower, to 18,542.15. The H-share Index, tracking mainland based companies, lost 2.24 per cent, or 179.80 points to close at 7,835.64.
Hong Kong dollar bounced back and traded at 7.8180 against US dollar at 4 pm, after hitting an eight-and-a-half year low of 7.8294 at midnight.
The one day chart of the Hong Kong market. Hang Seng Index (yellow line), H-share index (purple line). The percentage at the end shows the difference from the opening, not the previous close. Click to enlarge the chart.
3:08 pm By Xie Yu
The mainland markets closed sharply lower, as the benchmark Shanghai Composite Index tumbled 3.22 per cent, or 95.89 points to end at 2,880.80. The CSI300 Index fell 2.93 per cent, or 92.94 points 3,081.44.
The Shenzhen Composite Index dropped 4.01 per cent, or 75.32 points to 1,800.99. The Nasdaq-style ChiNext lost 4.18 per cent, or 92.24 points to 3,081.44.
The one-day chart for the mainland market. Shanghai Composite Index (yellow line), Shenzhen Composite Index (purple line), CS1300 Index (green line) and ChiNext (blue line). The percentage at the end of the chart represents the difference from the opening, not from previous close. Click to enlarge the chart.
2:19 pm By Xie Yu
Hong Hao, chief strategist at Bocom International, said:
"Currency volatility soars (in Hong Kong stocks) and suggests market stress. Interventions in mainland assets such as the RMB and A-shares have prevented market price from adjusting towards China's deteriorating fundamentals, and forced volatility to manifest in Hong Kong assets. Potential unwind of structural products as the HSCEI (Hang Seng China Enterprises Index) falls towards 7,000-8,000 can induce further short-term market stress. But these leveraged positions are weak hands, and their capitulation will eventually give a better entry point."
1:54 pm By Xie Yu
The Hang Seng Index lost 1.30 per cent, or 245.81 points, at 18,640.49. The H-share Index, tracking mainland companies, fell 1.65 per cent, or 132.18 points to 7,883.26.
1:54 pm By Xie Yu
The mainland markets gave up all the gains from the morning session, as the Shanghai Composite Index traded down 1.06 per cent, or 31.56 points, to 2,945.13. The CSI300 fell 0.94 per cent, or 29.94 points to 3,144.44.
The Shenzhen Composite Index retreated 1.21 per cent, or 22.64 points to 1,853.67. The Nasdaq-style ChiNext moved 0.85 per cent, or 18.71 points lower at 2,185.93.
12:42 pm By Enoch Yiu
Charles Li, chief executive of Hong Kong Exchanges amp; Clearing, said the exchange may launch a third board or revamp the GEM (the Growth Enterprise Market board) to lure more new listings.
12:42 pm By Laura He
The People's Bank of China injected 40 billion yuan into the financial system on Thursday via reverse repurchase agreements (reverse repos), following its recent moves to ease a seasonal liquidity squeeze ahead of the Lunar New Year holiday.
The PBOC offered 11 billion yuan worth of seven-day reverse repos, at an interest rate of 2.25 per cent, and 29 billion yuan worth of 28-day reverse repos, with an interest rate of 2.6 per cent, in its open market operations, the central bank said on its website.
The moves bring the PBOC's net injection of funds to 315 billion yuan this week.
On Tuesday, the Chinese central bank also added 150 billion yuan of liquidity through the standing lending faciliy (SLF), a short-term lending tool.
The PBOC usually injects funds to alleviate the seasonal cash crunch before China's week-long Lunar New Year holiday, which starts Feb. 8 this year.
12:12 pm By Jessie Lau
Hong Kong's Hang Seng Index closed the morning session higher at 18,945.60, up 0.31 per cent or 59.30 points.
The Hang Seng China Enterprises Index rose 0.21 per cent or 16.94 to finish at 8,032.38 at the midday break.
Below is the midday chart of the Hong Kong market. Hang Seng Index (yellow), H-share index (purple). The percentage at the end shows the difference from the opening, not the previous close. Click to enlarge the chart.
11:37 am By Jessie Lau
The Shanghai Composite index closed the morning session at 2,991.78, up 0.51 per cent or 15.09 points. The CSI 300 gained 0.65 per cent or 20.69 points to 3,195.07.
The Shenzhen Composite index rose 0.78 per cent or 14.68 points to 1,890.98, and the Nasdaq-style ChiNext advanced 1.45 per cent or 31.90 points to 2,236.55.
Below is the midday chart for the mainland market. Shanghai Composite Index (yellow), Shenzhen Composite Index (green), CS1300 Index (purple) and ChiNext (blue). The percentage at the end of the chart represents the difference from the opening, not from previous close. Click to enlarge the chart.
11:09 am By Jessie Lau
The Hang Seng Index rose 1.32 per cent or 248.51 points to 19,134.81, and the Hang Seng China Enterprises index gained 1.29 per cent or 103.55 points to 8,118.99.
11:09 am By Jessie Lau
The Shanghai Composite index dropped 0.02 per cent or 0.69 points to 2,976, while the CSI 300 gained 0.09 per cent or 3.01 points to 3,177.39.
The Shenzhen Composite index rose 0.63 per cent or 11.83 points to finish at 1,888.14, and the Nasdaq-style ChiNext gained 1.24 per cent or 27.44 points to 2,232.09.
10:39 am By Xie Yu
A January fund manager survey by Bank of America Merrill Lynch found:
"Just 12 per cent believe a global recession will occur in the next 12-months, investors remain OW (overweight) equities amp; UW (under weight) bonds, and stubbornly long tech, Eurozone amp; Japanese stocks (assets now most vulnerable to a redemption/recession shakedown).
Investors raise cash, cut growth and profit expectations, and rotate defensively (selling stocks, resources, industrials, banks amp; EM (emerging markets), and rotating to healthcare, staples, cash amp; bonds)."
10:32 am By Enoch Yiu
A research report by Bank of America Merrill Lynch said:
"Selling pressure against Hong Kong dollar intensifies with FX (forex) option reporting a cumulative notional volume of US$15 billion over 3 months."
"We revise our USD/HKD forecast to 7.85 for 2016 as a whole and revise our 3M (3-month) HIBOR (Hong Kong Inter-bank Offered Rate) forecast up."
10:17 am By Jessie Lau
The Hang Seng Index rose 1.35 per cent or 254.80 points to 19,141.10, and the Hang Seng China Enterprises index gained 1.38 per cent or 110.28 points to 8,125.72.
However, The Shanghai Composite Index fell 0.93 per cent or 27.80 points to 2,948.89, and the CSI300 lost 0.83 per cent or 26.25 points to 3,148.13.
The Shenzhen Composite Index fell 0.66 per cent or 12.32 points to 1,863.98, and the Nasdaq style ChiNext dropped 0.09 per cent or 2 points to 2,202.64.
10:10 am By Enoch Yiu
Offshore yuan continued falling Thursday morning, trading at 6.6033 at 10 am. The currency has fallen for three days in a row. It lost 0.15 per cent and 0.13 per cent separately on Wednesday and Tuesday. On Monday, the offshore rate rose 0.5 per cent, following a 1 per cent gain last week after the intervention of the People's Bank of China.
Meanwhile, the onshore yuan traded unchanged at 6.5778. The onshore rate was also flat on Wednesday. It rose 0.01 per cent on Tuesday.
The spread between the onshore and offshore yuan has narrowed down to 255 basis points, down from a record 1,400 basis points on January 7.
10:01 am By Ben Wescott
Global investment bank Barclays announced Thursday that it will dramatically wind back its Asia business operation, closing a number of equity services in the region.
In an email to clients on Thursday, the bank said it would be closing its cash equity research, sales and trading, and convertible bond trading businesses in all Asian countries.
"Our prime services and synthetics business will continue to operate as before across the region for financing and execution," the email said.
The move had been anticipated for a couple of weeks, with media reports saying chief executive Jes Staley was trying to trim costs.
Further cuts are expected to be announced in Barclay's operations in continental Europe and Latin America on Thursday, as the business focuses on the US and British markets.
Read an expanded version of the story here on scmp.com.
9:59 By Enoch Yiu
Hong Kong dollar bounced back to trade at 7.8080 in early trade Thursday morning, after hitting 7.8294 at midnight, which was the lowest in eight and a half year.
9:40 am By Enoch Yiu
The People's Bank of China set Thursday the yuan's mid-price against the US dollar at 6.5585, 7 basis points weaker than on Wednesday, when it set the mid-price 18 basis points stronger.
Meantime, it set the yuan's mid-price against the euro stronger by 241 basis points to 7.1386, and the yuan's reference rate for every 100 yen weaker by 203 basis points at 5.6037. The currency's mid-price against the pound was set 260 basis points weaker at 9.3247.
Traders are allowed to trade up to 2 per cent either side of the mid-price for the day.
9:34 am By Jessie Lau
Hong Kong stocks opened higher on Thursday. The Hang Seng Index traded up 1.02 per cent or 192.83 points at 19,079.13 in early trade, and the Hang Seng China Enterprises index gained 0.42 per cent or 33.39 points to 8,048.83.
On the mainland, the Shanghai Composite Index fell 1.42 per cent or 42.30 points to 2,934.39, and the CSI300 lost 1.20 per cent or 38 points to 3,136.38.
The Shenzhen Composite Index dropped 1.61 per cent or 30.27 points to 1,846.04, and the Nasdaq style ChiNext moved down 1.10 per cent or 24.26 points to 2,173.31.
9:24 am By Jessie Lau
Hong Kong stocks futures traded higher in the pre-trade session on Thursday morning, as the Hang Seng Index futures spot January contract gained 1.45 per cent or 273 points to 19,120, while the H-share index futures gained 1.32 per cent or 106 points to 8,111.
Overnight, all major US indices closed lower , with the Dow Jones Industrial Average finishing down 1.56 per cent at 15,766.74, the Samp;P 500 1.17 per cent down at 1,859.33. The Nasdaq Composite finished down 0.12 per cent at 4,471.69.
Elsewhere in Asia, Tokyo's Nikkei 225 rose 0.58 per cent to 16,510.99 on Thursday.
Read an expanded version of the story here on scmp.com.
Read Wednesday's China Markets Live - Hong Kong's Hang Seng sinks to close below 19,000 for first time since 2012 here on scmp.com.
Some Chinese banks have tightened risk management of short-term lending known as bill financing amid increased regulatory scrutiny, according to people familiar with the matter.
An Industrial amp; Commercial Bank of China Ltd. branch has suspended such lending for iron ore, steel trading and coal trading companies, and limited transactions to select banks, one of the people said, declining to be identified as he isn't authorized to speak with media. A joint-stock bank has also temporarily halted bill financing, which many smaller firms rely on to pay operating costs,a second person said. The funds usually must be repaid within several months.
The China Banking Regulatory Commission issued a notice earlier this month asking banks to review bill-financing businesses for violations and risks, two people familiar with the matter said. That adds to pressure on liquidity in the financial system before Lunar New Year holidays next month. While borrowing costs in China remain near decade lows, yields in the bond market have jumped this week as capital outflows amid the the yuan's tumble crimp cash.