China central bank suspends reverse repos to drain liquidity

Indo Asian News Service

Beijing, May 2 (IANS) China's central bank on Tuesday suspended open market operations for policy tightening.

The People's Bank of China (PBOC) withdrew 70 billion yuan ($10 billion) from the market, as reverse repurchase agreements (repos) matured, Xinhua news agency reported.

Reverse repos is a process by which central banks purchase securities from banks with an agreement to sell them back in the future.

"There was an increase of fiscal spending at the end of April and liquidity in the banking system remains at a moderate level. The central bank will not conduct reverse repos on Tuesday," said a PBOC statement.

The central bank has conducted open market operation reverse repos for nine-consecutive days.

Analysts said such moves reinforced the view that liquidity in the banking system will remain tight in May, as the economy stabilises in an uncertain environment.

China's GDP expanded 6.9 per cent year on year in the first quarter, up from the 6.8-per cent growth in the previous quarter and 6.7 per cent in 2016.

China has set the tune of its monetary policy in 2017 as prudent and neutral, keeping an appropriate liquidity level but also avoiding excessive liquidity injections.