Central bank withdraws liquidity for 3 weeks

China's central bank has drained liquidity from the market for three consecutive weeks, as demand for funds fall after the Lunar New Year holiday.

The People's Bank of China (PBOC) withdrew 625 billion yuan (90.84 billion U.S. dollars) from the market from Monday through Friday, up from 70 billion yuan last week.

The central bank skipped open market operations for the sixth straight session on Friday, citing a "relatively high level" of liquidity in the banking system.

It is standard practice for the PBOC to inject large amounts of liquidity into the banking system ahead of the Lunar New Year holiday when demand for funds surges, and to drain liquidity after the holiday as demand falls, according to Wen Bin, an analyst at China Minsheng Banking Corporation.

The liquidity withdrawal reinforces the view that the country is moving to a tighter policy as the economy shows signs of steadying.

China reported 6.7 percent economic growth in 2016, lower than in recent years but within the target range.

Last week, the PBOC unexpectedly raised lending rates on its standing lending facility short-term loans and the interest rate on open market operation reverse repos, showing that the authorities are committed to containing capital outflows and reining in financial risk.

However, analysts do not expect the central bank to rush to raise its benchmark lending rate any time soon.

China's monetary policy in 2017 is set to be "prudent and neutral," keeping appropriate liquidity levels but avoiding excessive liquidity injections.

source: Xinhua