PBOC governor attributes repos to holiday factors

The governor of China's central bank has attributed recent open market operations to "Spring Festival" factors. In an interview with Shanghai Securities News published on Friday, Zhou Xiaochuan said that the People's Bank of China (PBOC) issued repurchase (repo) agreements after the Spring Festival holiday to withdraw liquidity that had been injected into the interbank market ahead of the holiday. The central bank provided a huge reverse repo worth 860 billion yuan (137 billion U.S. dollars) in the week prior to the Spring Festival, which fell on Feb. 10, to guarantee liquidity during the holiday in case money market rates skyrocketed on rising cash demand. Worth a total of 30 billion yuan, the standard repos reintroduced by the PBOC on Feb. 19 represented the first time it had undertaken such a move in eight months. It also suspended reverse repos. Data showed that the move helped the bank take out a record 910 billion yuan of funds over the week that followed. However, analysts predicted that the country's modestly rising inflation will not lead to hawkish monetary control in the short term. They also ruled out the possibility of a relaxed monetary policy as the economy is stabilizing and liquidity remains relatively loose. The central bank conducted flexible open market operations to balance with reserve requirement ratio cuts in the first half of 2012. In the second half, it relied mainly on reverse repos to pump liquidity into interbank market, in a bid to smooth market volatility. Data showed the PBOC issued standard repos totaling 944 billion yuan and reverse repos of 6.038 trillion yuan for the entirity of 2012.