China's central bank tightens cash supply
CHINA'S central bank added fuel to fears yesterday 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 (PBOC) happened as Beijing stepped up its efforts to counter surging property prices in the capital in an attempt 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 told IFR, a Thomson Reuters publication.
Housing data this week has 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 JP Morgan in Hong Kong, argued the tighter conditions were overdue. A pick-up in the economy had probably reassured the central bank it could raise rates without damaging growth.
"That will increase the determination of the PBOC for credit normalisation, 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.
In response, China's seven-day repurchase rate - a benchmark for short-term funds - jumped by nearly a full percentage point to five per cent at the open yesterday. Reuters