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PBOC suspends open market operations again

2013-10-23 14:25 Global Times Web Editor: qindexing

China's central bank suspended its open market operations Tuesday without injecting money as usual, a move that analysts said was in response to a surge in foreign capital inflows in September.

It was the second time since July 30 that the People's Bank of China (PBOC), the central bank, has abstained from injecting liquidity into the market.

The PBOC normally conducts reverse repurchase (or repo) operations Tuesday and Thursday, injecting liquidity into the market by partially offsetting maturing bills.

It injected 10 billion yuan ($1.63 billion) worth of seven-day reverse repo contracts on October 15, and then withheld the 14-day reverse repo on Thursday (October 17), the first time it had done so since late July. This drained a net 44.5 billion yuan from the market last week, according to Reuters calculations.

The central bank's move was in response to a surge in foreign capital inflows last month, which resulted in increasing liquidity in the market, Hao Yijun, a Shanghai-based bond trader at China Guangfa Bank, told the Global Times.

The PBOC purchased 126.4 billion yuan worth of dollars in September amid large dollar inflows, an increase of 99 billion yuan from August, the PBC's data showed Monday.

Withholding from open market operations and draining funds indicates a moderate tightening of monetary policy, Hao said.

Despite the draining of funds, the Shanghai interbank offered rates are currently stable, he said.

"The central bank is concerned about the rapid growth in credit and loose liquidity conditions," Zhang Zhiwei, chief China Economist at Nomura Securities, said in a research note sent to the Global Times on Friday.

New yuan loans rose to 787 billion in September from 711.3 billion in August, and September's 14.2 percent year-on-year growth in M2, a broad measure of money supply, is still higher than the PBOC's target of 13 percent, Zhang wrote.

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