People's Bank of China pulls out $12.7bn from money market

China’s central bank had already hiked banks' reserve requirement ratio thrice as it steps up drive to tighten excess liquidity amid concerns about rising inflation.

The People's Bank of China (PBOC), the central bank, took 83 billion yuan (12.7 billion U.S. dollars) of liquidity out of the money market this week through its open market operations as it steps up efforts to tighten excess liquidity amid concerns about rising inflation.

The PBOC on Thursday auctioned 60 billion yuan ($9.19 billion) of one-year bills and carried out 91-day repurchase agreement operations worth 30 billion yuan ($4.59 billion). Through its open market operations on Thursday and Tuesday, the central bank realized a net tightening of 83 billion yuan ($12.71 billion) of liquidity this week after offsetting bills and repurchase agreements worth 212 billion yuan ($32.46 billion) that had matured.

Analysts said it was very likely for the PBOC to raise banks' reserve requirement ratio (RRR) again in April, if the central bank follows its pattern of hiking the RRR once a month in the January-March period.

The PBOC had already hiked banks' RRR three times this year to mop up excessive liquidity this year, demanding that China's major banks keep a record high of 20 percent of their deposits in reserve.

More than 900 billion yuan ($137.81 billion) worth of bills and repurchase agreements will mature in April and be released again into the banking system.

"Liquidity will be too excessive in the money market and exert new pressure on asset bubbles and price increases, if the central bank takes no action," warned Lian Ping, a chief economist for the Bank of Communications. "Therefore, it is necessary for the PBOC to continue to resort to tools such as RRR."

View the full story in Business China.