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MNI: Rush Of Chinese Repo Activity Prompts Concern-Analysts

MNI (Singapore)
London

The People's Bank of China is likely to act to restrain a surge in short-term borrowing, analysts say.

True

Unexpectedly loose liquidity in China’s interbank market at a time of weak overall credit demand has pushed short-term repo market activity to historic levels, fueling concerns over financial fragility and likely prompting the central bank to reduce the size of its medium-term lending facilities next Monday, economists and analysts said.

Daily pledge-style repo trading volume totaled a record CNY7 trillion last Thursday, with 90% composed of overnight repos, after first breaking CNY6 trillion in July. Any sudden tightening of conditions, prompted by stronger economic data or capital outflows, could produce financial stress similar to that seen in 2013 and 2017, said Cai Hao, a researcher with the National Institution for Finance and Development at the Chinese Academy of Social Science.

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Unexpectedly loose liquidity in China’s interbank market at a time of weak overall credit demand has pushed short-term repo market activity to historic levels, fueling concerns over financial fragility and likely prompting the central bank to reduce the size of its medium-term lending facilities next Monday, economists and analysts said.

Daily pledge-style repo trading volume totaled a record CNY7 trillion last Thursday, with 90% composed of overnight repos, after first breaking CNY6 trillion in July. Any sudden tightening of conditions, prompted by stronger economic data or capital outflows, could produce financial stress similar to that seen in 2013 and 2017, said Cai Hao, a researcher with the National Institution for Finance and Development at the Chinese Academy of Social Science.

Keep reading...Show less