Central bank readies banks for reserve ratio hike
(Reuters)
Updated: 2006-08-03 15:39 Some traders believe the central bank was anxious to preserve the roughly 3
percentage-point gap between Chinese and U.S. short-term rates, in order to
limit speculative funds flowing in to bet on appreciation of the yuan.
But in a sign that the market continues to expect higher short-term rates in
months ahead, yields rose when the central bank reverted to the auction method
in Thursday's open market operations.
One billion yuan of three-month bills sold at 2.4211 percent, up from
2.3805 percent a week earlier. The yield was the highest since 2.5429 percent in
an operation on January 13, 2005.
The central bank also sold 10 billion yuan of six-month bills at a yield of
2.7033 percent, up from 1.8175 percent on March 16, when such bills were last
issued.
Traders said that after August 15, the central bank would again face a
difficult task in balancing the need to tighten liquidity to curb money supply
growth, with the need to maintain a sizeable interest rate gap with the United
States to deter currency speculators.
Many traders continue to believe another hike in bank reserve requirements,
and possibly a rise of at least 27 basis points in official interest rates, lie
in store for coming months.
Movements in the government bond market this week suggested some banks still
have plenty of liquidity. The Shanghai stock exchange government bond index,
which fell from 109.447 to a low of 109.188 in the days after July 21, recovered
to 109.608 on Thursday -- well above its level when the latest reserve ratio
hike was announced.
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