PBOC Switch to Drain Cash Turns Citigroup Bearish
“The PBOC will try to tighten liquidity this year to counter rises in home prices and also to curb inflationary pressures at the consumer level,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “It will try to drain liquidity via open-market operations such as repos and bill sales. I also expect yields it offers in these operations
to be increased.”
The PBOC drained a net 910 billion yuan of capital this week, the biggest withdrawal since Bloomberg started compiling the data in 2008, after issuing 40 billion yuan of 28-day repurchase contracts and 10 billion yuan of 91-day repos. By contrast, the monetary authority pumped in a record 662 billion yuan of funds during the five days through Feb. 8, as cash demand surged before the Chinese New Year holiday.
Eoin Treacy's view While investors are weighing the
potential removal of liquidity in the USA , the Bank of China's actions this
week to damp property speculation are clear evidence that the country will not
allow its efforts to support the consumer to derail its measures to avoid a
further inflation of the property bubble.
Reining in loan growth will hamper the banking sector which has been the main beneficiary of easing measures over the last few months. The FTSE Xinhua A600 Banks Index rallied to break its three-year downtrend from late November and encountered resistance two weeks ago in the region of 11,500. It will need to find support above or in the region of the 200-day MA on the current pullback if the benefit of the doubt is to continue to be given to recovery potential.