Chinese banks sees no liquidity shortage

BEIJING -- Despite media reports about an interbank liquidity shortage, the People's Bank of China (PBOC, central bank) said Wednesday in a statement that liquidity in the money market is adequate.

PBOC admitted that liquidity growth in the banking system has accelerated in recent months as capital inflow into China had risen notably, owing to China's trade surplus in recent months and the US decision not to taper quantitative easing (QE).

According to the central bank, China's M2, a broad measure of money supply that covers cash in circulation and all deposits, rose 14.2 percent year on year to 107.74 trillion yuan ($17.5 trillion) at the end of September. The growth rate was 0.4 percentage points higher than that for the end of 2012.

PBOC said pressure for credit expansion was still high because of fast growth of new loans in recent months and increasing trade surplus and capital inflow.

China's new yuan-denominated lending in the first three quarters this year reached 7.28 trillion yuan, an increase of 557 billion yuan from a year earlier, according to PBOC.

The new lending increase was the second highest in the country's history, only after that for the same period of 2009, when lending stood at 8.67 trillion yuan.

Though so, PBOC said the inter-bank borrowing rate and bond reverse repo rate in September stood at 3.47 percent and 3.49 percent on average, respectively, both of which were roughly flat against the previous month.

The difference between the highest points of the 1-day rate and the 1-month rate was just 50 to 60 base points, which were clear signs of stable interbank rates and low volatility in the banking system, the central bank said.

So far this year, the PBOC has used such tools as reverse repurchase agreements, a short-term lending facility, and strengthened macro prudent management, so as to deliver stable interbank rates, it said.

PBOC has conducted regular open market operations, including repurchase agreements and bills, aiming to manage liquidity in the money market.

In the coming months, the PBOC said it would continue implementing prudent monetary policies and maintaining a balance between steady growth, economic restructuring, deepening reform and preventing risk.

PBOC would continue to use a variety of monetary policy tools to manage the liquidity in the banking system, and keep credit and total social financing aggregate, a broad measure of liquidity in the economy, growing at a reasonable and proper pace, according to the statement.