China central bank to issue 3-year bills in open market
Money market: A technician changes a stock board at Shanghai bourse. China's central bank will release three-year bills.Picture: AFP
Monday, January 29, 2007
THE central bank, seeking new ways to cope with the flood of funds pouring into China's money market, said on Monday it would begin to issue three-year bills regularly in its open market operations on Thursdays.
The bank issued three-year bills in an open-market operation last Tuesday for the first time since May 2005. Analysts said its decision to make the issue of such bills routine was part of efforts to absorb excess funds more effectively. "The central bank doesn't want a large amount of bills maturing at the same time. By diversifying its money market operations, it can smooth out liquidity flows over the longer term," said a trader at a big US bank in Shanghai.
He and others said they did not view the new step as a tightening of monetary policy but by giving the central bank better control of fund flows, the step could help the bank reduce excess liquidity in the market.
Previously, the central bank had relied on short-term instrument one-year and three-month bills, and occasionally bond repurchase agreements of one or several weeks in its open market operations. The central bank's brief statement on Monday did not give any clue to the size of future three-year bill issues, but the bank sold 60 billion yuan (US$7.7 billion) of them in last Tuesday's operation, which absorbed a total of 150 billion yuan. Partly in response to the central bank's announcement, money market rates rose slightly early on Monday morning. The price of the central bank bill due January 2008 fell to 97.35 yuan in the interbank market from the last close of 97.37.
Reuters
The bank issued three-year bills in an open-market operation last Tuesday for the first time since May 2005. Analysts said its decision to make the issue of such bills routine was part of efforts to absorb excess funds more effectively. "The central bank doesn't want a large amount of bills maturing at the same time. By diversifying its money market operations, it can smooth out liquidity flows over the longer term," said a trader at a big US bank in Shanghai.
He and others said they did not view the new step as a tightening of monetary policy but by giving the central bank better control of fund flows, the step could help the bank reduce excess liquidity in the market.
Previously, the central bank had relied on short-term instrument one-year and three-month bills, and occasionally bond repurchase agreements of one or several weeks in its open market operations. The central bank's brief statement on Monday did not give any clue to the size of future three-year bill issues, but the bank sold 60 billion yuan (US$7.7 billion) of them in last Tuesday's operation, which absorbed a total of 150 billion yuan. Partly in response to the central bank's announcement, money market rates rose slightly early on Monday morning. The price of the central bank bill due January 2008 fell to 97.35 yuan in the interbank market from the last close of 97.37.
Reuters
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