PBOC resumes bill issuance to drain liquidity
The issuance of the bills, totaling 10 billion yuan (1.61 billion U.S. dollars) and lasting for a term of three months, was the first such operation since Dec. 27, 2011, when the PBOC sold 4 billion yuan of one-year bills to commercial banks.
Compared with repurchase agreements that have a shorter term, central bank bills are usually intended to harness excess liquidity in an in-depth and long-lasting manner with a term from three months up to three years, according to analysts.
This makes Thursday's re-issuance of bank bills more of an act to adjust funds than a sign of tightened monetary policy, they said.
Multiple batches of short-term repurchase agreements, which the central bank has resorted to since the beginning of this year, may add up to a level that affects market expectation when they all approach maturity, explained Lianxun Securities analyst Yang Weijiao.
Yang said that the issuance of bank bills is a way to repair the central bank's previous liquidity controls.
Liu Dongliang, an analyst with China Merchants Bank, agreed that the restart of bank bill issuance reflects the PBOC's attitude toward possible capital inflows and excess liquidity.
The Chinese yuan advanced to 6.1925 against the U.S. dollar on Thursday, according to the China Foreign Exchange Trading System. Previous PBOC data also showed that Chinese financial institutions saw their funds outstanding for foreign exchange increase 1.2 trillion yuan in the first quarter of 2013.
To double the effect of draining liquidity on the money market, the PBOC also issued 28-day repurchase agreements of 37 billion yuan on Thursday, according to a statement on its website.
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