Date
29 March 2017
China's central bank will get a better grip on liquidity by increasing the frequency of its open market operations. Photo: Bloomberg
China's central bank will get a better grip on liquidity by increasing the frequency of its open market operations. Photo: Bloomberg

PBoC to conduct open-market operations every business day

The People’s Bank of China (PBoC) announced Thursday that it will start conducting open-market operations every business day, a move that will strengthen its control of money supply in the system.

Previously, such operations were conducted twice a week. The new policy takes effect immediately. 

In a statement, the central bank said that it will issue notices on the days that it refrains from offering repurchase agreements or reverse-repurchase agreements due to insufficient demand, Bloomberg News reported.

The contracts typically have maturities of up to 28 days and involve short-term loans that can add or remove funds from the financial system.

The PBoC introduced daily auctions from Jan. 29 to manage liquidity around the Lunar New Year holiday, and was due to revert to twice-weekly auction windows — on Tuesdays and Thursdays — from next week.

But it has now decided to extend the current schedule to improve the effectiveness of the operations, which adjust short-term liquidity in the banking system.

“The real purpose is not so much to increase efficiency but liquidity through open-market operations,” Bloomberg quoted Iris Pang, a senior economist for greater China at Natixis in Hong Kong, as saying in a note.

The reason to move away from traditional instruments such as the required-reserve ratio for big banks and interest-rate cuts to open-market operations may be to avoid giving one-off signals of easing, Pang said. 

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