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People's Daily Online>>China Business

Central bank makes 52b yuan injection of fresh cash

By Song Shengxia (Global Times)

08:14, April 20, 2012

The People's Bank of China, the country's central bank, injected 52 billion yuan ($8.25 billion) into the money market this week following its regular open market operations yesterday which saw the issuance of 20 billion yuan worth of 91-day repurchase agreements.

Despite a net injection by the central bank via open-market operation, analysts said yesterday that interbank liquidity is getting tighter due to a seasonal decline in bank deposits and annual tax payments due in April and May, indicating further policy easing will continue but a big stimulus is unlikely.

The central bank drained a total of 53 billion yuan from the market yesterday through two repo offerings Tuesday and yesterday, and a total of 105 billion yuan of central bank bills are set to mature this week.

That means the central bank has injected 52 billion yuan ($8.25 billion) into the money market this week.

The central bank carries out open-market operations twice a week to control liquidity in the money market.

"With upcoming corporate tax payments which will cause funds to flow to the central bank in the form of fiscal deposits in April and May, commercial banks will see a decline in deposits and tighter liquidity later this month," Lu Zhengwei, an economist with Industrial Bank, told the Global Times yesterday.

"I expect another 0.5 percentage point cut in the banks' reserve requirement ratio (RRR) by the end of the month," Lu said.

Signs of monetary easing to aid economic growth emerged after the Xinhua News Agency Wednesday reported that the central bank would increase liquidity by using tools including cutting RRR to steer the economy toward a soft landing.

The central bank will "increase reverse repo operations and cut the reserve requirement ratio at an appropriate time ... to release liquidity," an unidentified official of the central bank was quoted by Xinhua as saying.

"The central bank won't act forcefully to loose credit because the large amount of maturing bills allows it much room to manage liquidity," E Yongjian, a researcher with the Bank of Communications in Shanghai, told the Global Times yesterday. "Fine-tuning of monetary policy will be the dominant theme for quite a long time."

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