People’s Bank of China acts to boost liquidity, rallying Chinese stocks

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After hitting a 52 week low of 1,999 yesterday, the Chinese Shanghai composite index is up 2.5% today to 2,056 on news that the the Chinese central bank has injected a record amount of money into the financial system. The Rmb365 billion ($58 billion) injection over the last few days by the People’s Bank of China was used to address a perceived lack of liquidity which has increased borrowing costs in recent weeks and is the largest weekly amount in history.

The move was partly precipitated to offset any issues caused by banking deposit requirements which start at the end of every quarter and so meant that financial institutions were keen to hang on to money before October as well as a Chinese public holiday. But it sends a signal that the Chinese central bank is ready to act with further intervention if borrowing costs escalate further threatening growth. 

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