The Chinese central bank's efforts to soothe investor fears over a liquidity squeeze in the world's second largest economy had little impact with the country's stock market falling as much as 1.7 percent on Wednesday.
Following wild swings in the benchmark Shanghai Composite index that fell as much as 5.7 percent during the trading session on Tuesday, the People's Bank of China (PBOC) sought to reassure investors saying it has provided cash to some financial institutions facing temporary shortages and would maintain stability in the money market.
This was the PBOC's first significant announcement addressing volatility in inter-bank lending rates that began in mid-June. The central bank has largely taken a backseat amid the cash crunch advising banks to instead control lending.
Goldman Sachs strategists say while the central bank has somewhat alleviated the liquidity situation in the short run, this is unlikely to drive a turnaround in the slumping stock market.
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"We see few near-term positive catalysts to drive a sustainable or meaningful rebound. Tight liquidity conditions may continue for some time, unfavorable funds flow from rising U.S. rates, and investors may hesitate to buy aggressively, given economic uncertainties," they wrote in a report late Tuesday, forecasting range bound trading in the market going forward.
China's 7-day interbank lending rate - a key indicator of market liquidity - eased to 7.2 percent from the 7.5 percent close a day earlier. However, it remains well above the one-year average of around 3 percent.
Lack of clarity over the government's reform agenda may also be a deterrent for investors, Goldman strategists added.
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