China main money rate up, market awaits next bank reserve cut

SHANGHAI (Reuters) - China's main short-term lending rate rose 14 basis points on Friday as banks hoarded money to prepare for extra bank reserve payments due early next month while the market awaited a cut in bank reserve requirements.

While all eyes are on the Federal Reserve today as the market awaits clues into when the central bank will begin slowing its liquidity provisions, China's central bank continues its own snugging operation, keeping the money market rates at lofty levels. Rather than inject liquidity into the money markets, as the banks were clamoring for, the PBOC drained CNY2 bln yesterday, which continued the cash crunch and ensured that today's 10-year bond auction would see lukewarm demand.  Sure enough, today's CNY30 bln 10-year bond offering saw its lowest bid-cover ratio in a year.

ISTANBUL (Reuters) - Turkey's central bank acted to support the lira on Tuesday and Turkish debt insurance costs rose, as markets - looking past data on faster economic growth - took fright at fresh police and protester clashes in Istanbul.

Bloomberg reports China Swaps Surge as Cash Squeeze Sees Demand Wane at Debt Sale. China’s one-year interest-rate swap rose by the most in 22 months as the central bank refrained from adding funds to the financial system to ease a cash squeeze, causing demand to fall at a government debt auction.

Chinese officials are stepping up their efforts to regain control of the money markets and currency. The main target does not appear to be foreign investors, but rather the behavior of domestic businesses. Over the past weekend, China's foreign exchange regulator announced new rules designed to limit the banking system's ability to short foreign currencies and increase exposure to the yuan.

Since institutional memories are short, it is time to remind readers that it was the threat, and subsequent reality, of China overheating in the spring and summer of 2011 (when record high food prices sent the entire North African region in a state of coordinated revolt and gradually moved far east)

Steen Jakobsen, chief economist for Saxo Bank offers his take on the liquidity moves by global central bankers. Please consider Steen's Chronicle, Maximum Intervention Moves Into Overdrive