PBOC continues to drain liquidity from banks

The People's Bank of China (PBOC), China's central bank, continued to drain liquidity from the open market on Tuesday via 28-day repurchase agreements worth 5 billion yuan (795 million U.S. dollars).

It was the second week after the Spring Festival that the central bank conducted a repurchase (repo) operation while suspending reverse repos.

The bid interest rate stood at 2.75 percent, unchanged from the previous repos, according to a PBOC statement.

Last Tuesday, the central bank started to sell 30 billion yuan of repo agreements for the first time since June. Data showed that the move helped the central bank take out 910 billion yuan of funds in its open market over the past week.

The repeated repo operations aimed to address recently relaxed market money and the potential increase in foreign exchange among financial institutions, according to analysts.

In China's interbank market, the overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost of interbank borrowing as a key barometer of liquidity, rose modestly to 3.8 percent on Tuesday, indicating relatively loose liquidity on the money market.

Zhao Xiao, professor of economics with the University of Science and Technology Beijing, said that the PBOC aims to keep the market interest rate at a reasonable level by alternating between the two kinds of open market operations.

The central bank provided a huge reverse repo worth 860 billion yuan in the week ahead of the Spring Festival holiday, marking a record-high fund injection in a single week.

Meanwhile, rising inflation, rebounding demand and relatively relaxed liquidity will lower the possibility for a further loosened monetary policy, according to a report by China International Capital Corporation.

Compared with last year, the country's monetary control this year will have to balance between various pressures in the economy, Zhao said.