China’s central bank downplays draining funds from banking system after worst cash crunch in six years
- The People’s Bank of China says the market should pay less attention to the volume of its liquidity operations and more to the interest rate on those operations
- Central banks promises ‘prudent’ monetary policy that will strike a balance between economic recovery and risk prevention
In its fourth quarter monetary policy implementation report, the People’s Bank of China (PBOC) suggested financial markets should pay less attention to the adjustments in the volume of its liquidity operations and more to the interest rate adjustments on those operations.
The PBOC said on Monday its “prudent” monetary policy would strike a balance between economic recovery and risk prevention, while being flexible, targeted and appropriate.
Last month, markets were rattled by the PBOC’s decision to conduct a net withdrawal of 6.34 billion yuan (US$983 million) in its regular open market operations – the first reduction in four months – especially given demand for cash was usually high ahead of the Lunar New Year holiday.
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In response, the overnight repo rate, a key gauge of the price of loans banks charge each other, spiked to a six-year high and surpassed the yield on China’s 10-year government bond.