Central bank drains cash to combat inflation risks
Print Edition
China’s central bank added fuel to fears yesterday that it was clamping down on inflation risks as it allowed cash to drain from the financial system for a second straight week, sparking a jump in short-term rates.
The move by the People’s Bank of China occurred as Beijing boosted efforts to curb surging property prices in the capital in a bid to calm rising discontent over the city’s record-high home prices.
China also widened the funding options for local governments and property companies by giving them access to the interbank bond market to finance affordable housing, a priority of Chinese leaders, sources said.
Housing data this week have raised fresh concerns about property bubbles in some major cities, which could add to consumer inflation — already at a seven-month high — and add to criticism that home prices are increasingly out of reach of ordinary Chinese.
Zhu Haibin, chief China economist at JPMorgan in Hong Kong, argued the tighter conditions were overdue. A pickup in the economy has probably reassured the PBOC it could raise rates without hurting growth.
“That will increase the determination of the PBOC for credit normalization, for credit tapering. The policy in the last few years overall has been very loose, with credit growth way higher than nominal GDP,” Zhu said.
The central bank, which sparked a market panic in June by engineering a cash crunch, refrained from taking part yesterday in scheduled money market operations for the third consecutive time. It has drained more than 157 billion yuan (US$26 billion) from money markets since the week of September 30.
In response, China’s seven-day repurchase rate rose 65 basis points, the biggest increase since July 29, to 4.67 percent yesterday, according to a daily fixing by the National Interbank Funding Center.
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