Economy

Markets

Industries

Insights

Reports

Events

PBOC likely to adopt a tighter monetary policy: report

By Qiang Xiaoji (chinadaily.com.cn)
Updated: 2009-10-30 17:33

The People's Bank of China (PBOC), the central bank, continued to withdraw liquidity through open market operations this week, with a net drain of 133 billion yuan from the market, sending the net withdrawal in October to 156 billion yuan ($22.85 billion), the biggest monthly drain since February, the China Business News (CBN) reported today.

The PBOC yesterday initiated the selling of three-month bills worth 80 billion yuan at a yield of 1.3280 percent and soaked up 50 billion yuan from the interbank market through 91-day repurchase arrangements, with the interest rate remaining at 1.33 percent, according to the China Securities Journal.

Though the interest rates stayed stable, the central bank has been draining large sums of funding from the financial system over the past three weeks. Analysts said October might be the turning point of the monetary authority's open market operations, changing their strategies from loose to tight, the newspaper said.

Related readings:  China's forex reserve hits record $2.27 trln   PBOC reaffirms 17% money supply growth target for 2009  PBOC reaffirms moderately loose monetary policy  Retail prices stabilizing, PBOC says

156 billion yuan in October

According to the PBOC statement, the central bank drained 130 billion yuan through Thursday's open market operations by issuing three-month bills and 91-day repurchase agreements.

The statistics released by Wind Info, a Chinese financial data provider, showed with bills worth 55 billion yuan maturing this week, the central bank soaked up 188 billion yuan, or a net withdrawal of 133 billion yuan. In the previous two weeks, the PBOC drained 73 billion yuan and 160 billion yuan respectively.

Other statistics showed the central bank's net withdrawal in October totaled 156 billion yuan after it drained money from the open market for three weeks in a row.

Turning point

Analysts said this month might be the first turning point of the central bank's open market operations since the fourth quarter of 2008.

The central bank had injected money into the financial system for five consecutive months before October. The net injection in September even reached 279 billion yuan thanks to factors like IPOs and the National Day holidays, the report said.

But as the central government recently made it clear to well manage "inflation expectations", the monetary authority is now intensifying efforts to take previous injections back.

As China's economy began to show recovery in the second half of this year, mainstream organizations had previously made predictions about possible shift of the central bank's policies, but remained vague on the timing of the policy changes, the report said.

Worldwide, Australia and Norway recently raised interest rates, and India also announced this week the hike of the reserve requirement ratio. The changing external monetary environment would also affect China's monetary policies, according to the report.