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China: Further liquidity boost needed – Deutsche Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 22, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at Deutsche Bank, suggests that in their view, combining liquidity operations with RRR cuts may be more effective in stabilizing bond market funding costs.

    Key Quotes

    “In its meeting with commercial banks on the 19th, the PBoC decided to accommodate interbank liquidity demand by using reverse repo operations in the open market to meet short term liquidity demand during the Chinese New Year, and supplying about RMB600bn medium term liquidity via MLF (Medium term Liquidity Facility), SLF (Standing Liquidity Facility), and PSL (Pledged Supplementary Lending), instead of RRR cuts, for now.

    Money market rates rose this week and the selling pressure on cash bonds in the past few trading sessions reflects both liquidity tightening and the market’s disappointment over the delay in RRR cuts. For this reason and given supply pressure in the bond market this year, we think further selling on cash bonds may tip the balance towards using a combination of MLFs/PSLs and RRR cuts in order to stabilize money market rates as well as bond market funding costs.”
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