Central Bank Seen Bringing Money Supply Nearer Aim

The central bank drained a net 43 billion yuan (US$5.3 billion) from the banking system this week as it tried to bring money supply growth closer to its full-year target, analysts said Thursday.

The People's Bank of China resumed issuing bills in its regular market operations Thursday, restarting efforts to drain excess liquidity from the banking system after refraining from such issues the previous three Thursdays.

It issued 45 billion yuan in one-year bills in a public tender and absorbed a further 30 billion yuan by entering into seven-day reverse repurchase agreements, it said on its Web site.

"It is almost certain that the growth in China's money supply for 2005 will exceed the target," said a banking analyst at a Beijing-based bank.

"In its last open market operations for the year, the central bank seemed to be trying to dress up the annual money supply figures."

China's M2 money supply grew 18.3 percent in the year through November, accelerating from 18 percent in October and topping a targeted growth rate of 17 percent for all of 2005.

On Tuesday, the central bank mopped up 63 billion yuan from the banking system, up from 40 billion yuan a week earlier, through bill issues and repurchase agreements.

Taking into account 95 billion yuan of maturing bills and repurchase, the central bank has thus soaked up a net 43 billion yuan from the market this week.

In the previous three weeks, it had replaced large bill offerings with small repurchase agreements Thursdays after analysts had voiced concern that it was siphoning too much liquidity from the market.