China CB Drains Funds Via Repos For First Time In 8 Months

(RTTNews) - Chinese central bank on Tuesday used repurchase operations/repos for the first time in eight months, to mop up excess liquidity in the money market.

The People's Bank of China issued 14-day forward repurchase contracts, at a bid rate of 3.8 percent, to absorb CNY 48 billion ($7.9 billion) from the interbank market.

The central bank used the tool for the first time since June. Thus far, the bank was relying on reverse repos to manage liquidity in the system.

Money market rates eased after official data showed over the weekend that bank lending surged to a four-year high in January, adding concerns about high credit growth and quality of lending. The benchmark seven-day repurchase rate fell to a three-month low of 3.8 percent on Monday.

Capital Economics Chief Asia economist Mark Williams noted that the bigger picture is that bank loan growth has been effectively flat since the middle of 2013. The economist expects market rates to continue to trend higher, further slowing the pace of credit growth, particularly in the shadow banking sector.

Banks lent CNY 1.32 trillion worth of new loans in January, up from CNY 482.5 billion in December, data released by the People's Bank of China showed. However, it is usual for loans to surge in January ahead of the Lunar New Year holiday. Total social financing, a broad measure of liquidity and credit, totaled CNY 2.53 trillion in January, more than double the December's figure.