PBOC denies existence of credit crunch

Promises stability and support for banks.

The People’s Bank of China, the central bank, is promising distressed banks "liquidity support" if needed after a shortage of money in credit markets last week caused a surge in the interest rate banks pay to borrow from each other. That caused Chinese stock markets to plunge June 24 on fears China might face a credit crisis.

PBOC said money had been provided to some banks but gave no further details. It earlier blamed the credit crunch on mismanagement by banks and on technical factors, including higher demand for money to meet quarter-end regulatory requirements at the end of the financial quarter.

"The bank will provide liquidity support if an institution faces a temporary gap in funding arrangements," a PBOC statement said. "The central bank will take appropriate measures to maintain the overall stability of the money market."

The central bank said the interest rate banks must pay each other for overnight loans fell to 5.83%, down from a record high of over 13% last week.

Some analysts said PBOC was partly to blame by failing to make clear its position on such borrowing following a surge in commercial bank lending this year.

The Chinese government is trying to control a credit boom but analysts said commercial bankers expected the central bank to inject extra money into the interbank market.