PBOC drains 130 bln yuan in open market operations

BEIJING  -- The People's Bank of China (PBOC) on Thursday drained 130 billion yuan (18.4 billion US dollars) from the interbank market through central bank bill issues and repurchase transactions.

The PBOC issued to primary traders 30 billion yuan of three-year bills and 56 billion yuan of three-month bills with yields of 4.56 percent and 3.40 percent, respectively. Both yields were flat from last week.

The central bank also conducted 44 billion yuan of 28-day repos at a yield of 3.20 percent, also flat from last week.

Inflation surged to an almost 12-year high of 8.7 percent in February.

The bills issue and repos, however, was much smaller in size than during the past few weeks. The PBOC on Tuesday raised the reserve requirement ratio by 0.5 percentage points to a record high of 15.5 percent, and this will absorb another 200 billion yuan from the banking system as of March 25.

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

Some analysts said the big interest rate cuts in the US had left China with a hard choice when considering raising rates, even harder when taking into account a slower growth on weakening overseas demand.

The US Federal Reserve on Tuesday cut the interest rates by 0.75 percentage points to 2.25 percent to ward off recession. It has lowered the rate by 3 percent since last September.