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Bonds issued to soak up bank-held liquidity
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The People's Bank of China issued bonds worth 195 billion yuan (US$27 billion) yesterday to soak up extra cash that banks held after the Lunar New Year holiday.

The issue of the bonds, the largest amount in almost one year, showed the central bank is still on a tight monetary policy to contain the economy and inflation, said analysts.

The central bank sold three-year bills for as much as 90 billion yuan, up from the highest single issuance of 23 billion yuan since the beginning of this year. It also auctioned 75 billion yuan in one-year bills and 30 billion yuan in three-month bills.

"Taken the interest gap between the yuan and the dollar after the United States cut its rates, the central bank will rely more on measures such as bonds and reserve requirement increases to drain excess liquidity in the market," said Li Maoyu, an analyst at Changjiang Securities Co.

"As the market has ample supply of money after the holiday, the move will unlikely hit cash flow."

During the week-long Spring Festival holiday, consumers spent 255 billion yuan, up from 219.8 billion yuan in the same period last year, according to the Ministry of Commerce.

China adopted a tight monetary policy stance after inflation aggravated in the later half of last year.

The consumer price index, the main gauge of inflation, grew to an 11-year high of 6.9 percent in November last year and may climb above seven percent in January due to the worst snowstorm to hit the country in 20 years which pushed prices, especially food.

M2, the broadest measure of money supply, rose 18.9 percent to 41.78 trillion yuan in January from a year earlier, said the central bank yesterday. It grew at the fastest pace in 20 months and compared with December's 16.7-percent gain.

The central bank has raised its benchmark interest rate six times and the reserve requirement ratio 11 times since last year.

(Shanghai Daily, February 15, 2008)

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