The People’s Bank of China (PBOC), China‘s central bank, auctioned 44 billion yuan (6.47 billion U.S. dollars) of one-year bills at its regular open market operations Tuesday at a yield of 2.0929 percent.
The one-year bills issued this week were 11 billion yuan (1.62 billion U.S. dollars) more than those sold by the central bank last week.
The central has kept the yield of one-year bills unchanged at 2.0929 percent since June 8.
Bills and repurchase agreements worth 166 billion yuan (24.42 billion U.S. dollars) will mature this week, compared with 92 billion yuan (13.58 billion U.S. dollars) last week, thus adding more pressure on the PBOC to absorb liquidity from the money market.
Liu Junyu, an analyst at China Merchants Bank, said the central bank was in a dilemma now on how to carry out its open market operations without triggering speculation of interest rates hikes.
“The demands for short-term central bank bills are declining in the market, as indicated by the PBOC’s halt of three-month bills issuance,” Liu said.
As new lending growth is basically under control, Liu said, the need for the central bank to issue the three-year bills, to lock up liquidity over the longer term, has decreased.
“Under such circumstances, it will be a headache for the central bank to shift the market demand to short-term bills without triggering interest rate hikes expectations,” he added.
China’s new yuan-denominated lending in July fell to 532.8 billion yuan (78.6 billion U.S. dollars) from 603.4 billion yuan in June, bringing new loans for the first seven months to more than 5.16 trillion yuan, compared with 7.73 trillion yuan during the same period last year.
The decline followed the central bank’s moves concerning lending to local financial vehicles, the property sector and industries with overcapacity.
Chinese government fixed this year’s target for new loans at 7.5 trillion yuan, after the record 9.59 trillion yuan of new loans in 2009 sharply pushed up asset prices in the country.
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China’s central bank keeps 1-year bill yield unchanged at 2.0929 pct