Tuesday 18 February 2014 8:14 pm

Cautious China sucks liquidity from markets

CHINA’S central bank yesterday sucked liquidity from the markets in a surprise move which underlines the authorities’ fears about the rate of credit growth. It withdrew 48bn yuan (£4.7bn) from the money markets with two-week repurchase agreements (repos), after data showed a surge in credit volumes late last week. The aim is for banks and other financial institutions in the market to lock their money away for a fortnight with the People’s Bank of China, removing it from play and stopping it being used for other loans. The forward repo operations came with an interest rate of 3.8 per cent, the PBoC said. Analysts believe the move shows the monetary authorities are keen for the economy to slow down steadily, rather than allowing any financial bust to take place. “This decision is a reminder that the tightening bias remains in place and the desire to curb credit growth remains intact,” said Societe Generale’s Kit Juckes. “As such, this should be seen as a commitment to allow the on-going slow and steady slowdown of the Chinese economy to continue.” As a result this move can also be seen as further evidence the world economy will be slowed by the soft landing in China. “To me what goes on in China is more important than what Federal Reserve decides,” said Saxo Bank’s Steen Jacobsen. “China is 36 per cent of world growth in 2012 – it is slowing down and their domestic agenda is full of issues which all need to find a new equilibrium price, by accepting a small dose of crisis the risk of course is a big crisis, but at least China is trying to deflate the credit cycle.” The Shanghai Stock Exchange Composite fell on the announcement, ending the day down 0.77 per cent.