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PBOC restarts bill repurchase, RRR cut likely


13:17, May 05, 2012

BEIJING, May 4 (Xinhua) -- China's central bank has restarted bill repurchase to inject cash to banks, reversing normal practice for this to happen ahead of holidays, a shift which has underscored tight liquidity and led to anticipation of further cuts in the reserve requirement ratio (RRR).

The People's Bank of China repurchased bills worth 65 billion yuan (10.32 billion U.S. dollars) through open market operation Thursday. It was the first time since 2003 that such a move has been made outside of the Spring Festival holiday and supports the central bank's previous pledge that it will scale up bill repurchase to ease liquidity.

With 52 billion yuan of purchased bills due this week, the central bank has injected 117 billion yuan, the largest weekly volume in the past 15 weeks.

Restarting bill repurchase makes sense given the current liquidity strains, bank dealers said.

China's yuan funds outstanding for foreign exchange increased 124.7 billion yuan (19.79 billion U.S. dollars) in March, but the 289 billion yuan totalled in the first quarter of 2012 was not significant.

This means the central bank injected 289 billion yuan worth of foreign exchange to commercial banks in the first quarter to offset the same amount of foreign exchange inflow, comprised of trade surplus and overseas speculative money, as Renminbi is inconvertible under the capital account.

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