PBoC to Ease Liquidity After Meeting With Financial Regulators
A meeting between the PBoC and financial regulators is getting a lot of attention. The meeting is seen as signaling an easing of deleveraging policy after tight financial conditions hammered the stock, bond and commodity markets.
Reporters are poring over a PBoC statement following a meeting with three regulatory agencies. One sentence getting a lot of attention says: strengthen regulatory policy communication and coordination, advance the agenda.
Text analysis from a reporter:
1. The PBoC is not in charge because the statement said the meeting is “one bank three regulators.” If the PBoC was in charge, it would have convened a meeting with three regulators.
2. PBoC open market operations will be appropriately increased, deleveraging policy may be eased
We should pay attention to today’s very important three messages, and to combine to see.
1, the central bank for a few days after the zero delivery or net return, the recent return to reverse repurchase, and release the MLF operation tomorrow.
2, the regulatory authorities have issued a letter to the bank to understand the interbank financial market interbank lending, loans, notes and other interest rates.
3, Beijing, a number of banks raised deposit interest rates floating rate, increase in 2-year time deposit rate are relatively large, short-term deposit rates are reduced.
Since April, the oversight push has three stages. 1. CBRC oversight exceeded expectations, stocks and bonds killed 2. the regulatory attitude and the media attitude was loose, the market thinks the oversight “won’t be too strict,” the stock and bond market rebound; 3. regulators and media trends again more stringent, the market is expected to deteriorate significantly, stocks, bonds, commodities all killed.
Phase 3 “line of three” competitive levers, especially the CBRC investigation of interbank deposits, has begun to affect the bank’s balance sheet and income statement. Banks because of lack of money, began to attract depositors term deposits, focusing on 3 months to 2 years.
Obviously the CBRC has already noticed, so the investigation of various interest rates. At the same time, the central bank began to release a positive signal to the market, the money market will not be as tight as before.
Stock market today also quickly respond, turn over the red. [Red is up in China.] With the beginning of the “One Belt One Road” forum, the regulators are talking about politics.
Comprehensive information can be seen that financial deleveraging has entered the fourth stage, there are two characteristics:
1, “One bank three regulators” competitive deleveraging has changed, and really began to cooperate.
2, the current round of deleveraging will always maintain a “moderate” pace, the economy will not have a hard landing.
An important turning point is the first quarter Politburo meeting, and now began to gradually implement.
China’s financial regulators are signalling that they will continue to tighten rules and slash leverage, regardless of the short-term pain their moves bring, keeping with President Xi Jinping’s order to prioritise financial security.
The Financial News, a publication under the People’s Bank of China (PBOC), said in a commentary on Monday that market participants should refrain from exaggerating small-market volatility, lest their actions disrupt regulators’ determination to enhance supervision amid a “mild deleveraging” of the marketplace.
“There’s no need to worry about the current monetary policy and regulatory policies,” the commentary said. “Stability remains the key tone.”
Investors, however, heavily sold off their holdings in China’s stock, bond and commodities futures markets in recent weeks, on the increased regulatory efforts and their increasingly hawkish tone.
Related from Reuters: China c.bank queries some banks on MLF demand, to inject funds on Fri – sources
Related from Balding at Bloomberg: Is China Really Deleveraging?
For now, China’s government seems willing to accept all this as the price of reducing financial risk. And that’s commendable. But as the pain gets worse — and spreads to state-owned companies, consumers and banks — the pressure will only build to once again let credit balloon. Economics is the study of tradeoffs. Beijing will soon have to decide whether this one is worth it.