July 15, 2012
1. The frustrated and aggressive central bank
If one wants to know how bad the health of China’s economy has gone, look no further than the PBOC’s composure, which seems rather frustrated and aggressive as of late. On 5th July, the central bank cut benchmark interest rates for the 2nd time in less than a month. This happened right after the fact that in December 2011, PBOC cut the reserve requirement ratio(RRR) by a 50 bp to 21%, it followed up with another 50 bp in February and another 50 bp in May to 20% currently.
On top of all the rate cuts, PBOC also made its biggest injection of funds into the money market in nearly six months. The PBOC injected a net 225 billion yuan ($34.5 billion) through the reverse-repurchase operations(repo) on last Tuesday and Friday, following a combined injection of 291 billion yuan in the previous four weeks.
2. The systematic short-circuit of debt financing’s in order
So why PBOC is in such an urge to open the floodgate of liquidity?
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