Monday, June 24, 2013

What Cash crunch? China's crunch time is yet to come

What Inquiring Minds Want to Know: How can a largely state-owned banking system experience a credit crunch?

The Chinese central bank has been reining back credit for some time now as it has sought to control housing prices. But, when the cheap money from the rest of the world began reversing due to the Fed signalling an end date for the era of cheap money, funds leaving emerging economies like China have made the situation more apparent.

Last week, the overnight lending rate between banks jumped to exceed 25% as banks became reluctant to lend to each other. But the lending rates fell again when the state-owned banks fell into line and resumed lending to each other.  Now, the Chinese central bank says that liquidity is "ample" and essentially indicated that it will not inject more cash, holding firm on the line of controlling credit growth in the economy….

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