PBOC drains RMB 130 bln in open market operations

The People's Bank of China (PBOC), the country's central bank, drained RMB 130 billion (US$18.4 billion) on Thursday, from the inter bank market through central bank bill issues and repurchase transactions.

The central bank issued RMB 30 billion of 3-year bills and RMB 56 billion of 3-month bills to the primary traders, with yields of 4.56% and 3.40%, respectively, and both yields were flat from two weeks ago. Similarly, the central bank carried out RMB 44 billion of 28-day repos, with yields of 3.20%, also flat over the same period.

PBOC increased the reserve requirement ratio by 0.5% to 15.5%, which will absorb another RMB 200 billion from the banking system as of Mar. 25. The measures will help to further implement tightening monetary policies and cool the economy, as the inflation soared to an almost 12-year high of 8.7% in February.

The central bank may be more inclined to use open market operations and reserve requirement rises, rather than interest rate rise, to soak up excess liquidity, said Ba Shusong, a researcher with the State Council's Development Research Center.