Metals News
Central Bank to End 11-Week Liquidity Reduction
data analysis
May 14,2010

BEIJING, May 14 -- The People's Bank of China (PBOC) will increase liquidity in the banking system by 152 billion yuan this week, ending the situation that the central bank kept mopping up excess money for 11 weeks straight, the financial website reported Thursday.

The PBOC announced Thursday it would sell 20 billion yuan ($2.93 billion) worth of three-month bills in its regular open-market operations at a yield of 1.4088 percent, unchanged for the 15th week in a row, and that it would also drain 30 billion yuan through 91-day bond repurchase agreements, with the interest rate at 1.41 percent.

The central bank carries out regular open-market operations Tuesdays and Thursdays.

The central bank only issued 14 billion yuan one-year bills on Tuesday, bringing the liquidity withdrawn from the open market this week to only 64 billion yuan. With bills and repos maturing this week, as high as 216 billion yuan will be injected into the market.

This means the central bank will increase liquidity by 152 billion yuan this week.

As the central bank raised the deposit reserve ratio Monday, soaking up about 320 billion yuan, slowing down withdrawal of liquidity will reduce the impact of deposit reserve ratio increases. Moreover, financial organizations now prefer long-term bonds to one-year or three-month central bank bills, so the withdrawal could not go up immediately, the Shanghai Securities News said.

Although the PBOC has raised the deposit reserve ratio three times this year and kept a net withdrawal continuously for 11 weeks, there still is excessive liquidity in the banking system. So an increase of liquidity might be temporary and a net withdrawal is still needed, the newspaper said.

With bills and repos due to mature in the next week reducing to 95 billion yuan and the awaited three-year bills launching in the coming week, the open market may see a net withdrawal again, according to the Shanghai Securities News.

China economy macroeconomy
Macro control policy
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