Bloomberg News

China Suspends Bill Sales Before Lunar New Year Holiday

January 06, 2012

(Adds strategist comments in the third paragraph.)

Jan. 6 (Bloomberg) -- The People’s Bank of China, which refrained from selling three-month bills for a second week, said it will suspend debt sales ahead of the Lunar New Year holiday.

The monetary authority will conduct reverse-repurchase operations based on demand, according to a statement posted on the central bank’s website. The monetary authority added a net 51 billion yuan ($8.1 billion) to the banking system this week, the biggest increase in eight weeks, to help stem an increase in money-market rates as banks hoard cash before the week-long holiday starts on Jan. 23.

“This will ensure a continued positive flow of cash to the interbank market in this period of tight liquidity,” said Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong. “We still expect a reserve-ratio cut before the Lunar New Year.”

The monetary authority will boost the availability of cash by cutting lenders’ reserve requirements before the holiday, economists at Barclays Capital and Bank of America Corp. predict. The central bank cut the amount of cash that lenders must set aside as reserves for the first time since 2008 last month as Europe’s debt crisis dimmed the outlook for exports and growth.

The seven-day repurchase rate, a gauge of funding availability in the financial system, fell 20 basis points this week to 4.31 percent in Shanghai, based on a daily fixing by the National Interbank Funding Center. It reached a five-month high of 5.60 percent on Dec. 30.

Premier Wen Jiabao said business conditions may be “relatively difficult” this quarter and monetary policy will be fine-tuned as needed.

The economy expanded 8.6 percent from a year earlier in the fourth quarter of 2011, the least since June 2009, according to the median estimate of economists surveyed by Bloomberg before data due later this month.

--With reporting from John Liu in Beijing. Editors: Ven Ram, Andrew Janes

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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