Central bank readies banks for reserve ratio hike
(Reuters)
Updated: 2006-08-03 15:39 China's central bank drained
only a small amount of funds from the money market this week, after net
injections in the two previous weeks, as it prepared the banking system for the
impact of its latest reserve ratio hike.
Traders said the central bank's
relatively generous stance would probably not last long, and that monetary
authorities were likely to resume tightening in the weeks after the reserve
ratio rise takes effect on August 15.
"Some banks have suffered a temporary liquidity squeeze as they are preparing
money for the reserve ratio hike, and that has made the money market more
volatile in past weeks," said a dealer at a major Chinese state-owned bank in
Beijing. The central bank wants to minimise this volatility, she said.
"But official credit tightening is far from over, as there is no obvious
evidence that the economy has stopped growing at a breakneck speed."
The central bank's open market operations on Tuesday and Thursday meant it
drained a net 14.09 billion yuan ($1.8 billion) this week. That was a much
smaller outflow of liquidity than net drains totalling tens of billions of yuan
in June and early July.
Last week, the central bank actually injected a net 2 billion yuan into the
banking system, after an injection of 27 billion two weeks ago.
But traders saw the injections as designed to facilitate the outflow of an
estimated 150 billion yuan that will occur when a 0.5 percentage point hike in
bank reserve requirements, announced on July 21, becomes effective on August 15.
It was the second reserve ratio hike announced in the space of five weeks.
On Tuesday, the central bank signalled that it wanted the rise in short-term
interest rates to pause by using a rare method of selling one-year bills in its
open market operation.
(For more biz stories, please visit Industry Updates)
|
