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PBOC halts bill issue before Lunar New Year (2)


11:53, January 07, 2012

Banks' liquidity is expected to tighten further, as only 75 billion yuan in bills and repurchase agreements will be due in the coming three weeks, experts said.

In the money market, the short-term Shanghai Interbank Offered Rates (Shibor), which measures the cost for banks to borrow from one another as a key barometer of liquidity, were mixed on Friday.

The overnight Shibor slipped 0.21 basis points to 3.99 percent, while the Shibor for one-week and two-week terms fell by 20.34 basis points and 30 basis points to 4.30 percent and 4.61 percent, respectively.

The one-month term Shibor rose 9.89 basis points to 5.94 percent.

"People tend to spend more during the Lunar New Year holiday, adding to banks' pressure to meet customers' cash withdrawal and payment demands," said Zhao Xijun, a finance professor at Renmin University of China.

A falling monetary base due to the shrinking yuan position for foreign currencies over the past two months also led to tighter liquidity in the market, Zhao said.

"The suspension of bill sales shows that the PBOC hopes to stabilize banking liquidity through open market operations, thus reducing the likelihood for the central bank to scale down banks' reserve requirement ratio (RRR) in the near term," Zhao said.

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