China's central bank issued 101 billion yuan (US$13.3 billion)
in three-year directional bills last Friday to rein in snowballing
commercial bank lending, prompting further speculation over an
imminent rise in interest rates.
"Interest rate hikes have followed the issuance of central bank
bills since May 2006," said Dong Dezhi, an analyst with the global
financial market department of Bank of China (BOC).
He said the central bank would see more immediate effect by
issuing directional bills than increasing interest rates. "If the
central bank issues the bills after rate hikes, it will have to pay
more for the issuance. This will add to the cost of curbing
excessive liquidity," he added.
Traders with China Construction Bank (CCB) said the issuance
would help suppress rampant bank lending as some commercial banks
still have more than enough deposits despite the deposit reserve
rate being raised seven times.
The nation's four state-owned commercial banks, or the Big Four,
subscribed to the majority of the bills with an interest rate of
3.6 percent.
The CCB purchased 24 billion yuan in bills, the Agricultural
Bank of China 19 billion yuan, the Industrial and Commercial Bank
of China 18 billion yuan, and BOC 14 billion yuan.
Other commercial banks such as China Minsheng Banking Co. Ltd.
and China CITIC Bank also subscribed for the bills. China Minsheng
Banking Co. Ltd., which saw rapid lending growth in the first six
months, purchased 9.5 billion yuan.
It was the third time in this year the central bank issued bills
to draw excess currency from commercial banks. On March 9 and May
11, the central bank issued bills worth more than 200 billion
(US$26.3 billion) in total to rein in excessive liquidity.
According to the central bank data released on July 11, the
nation's commercial banks lent up to 2.5 trillion yuan (US$329
billion) in the first half of the year, approaching 80 percent of
last year's total. In June alone, these banks approved loans valued
at 451.5 billion yuan (US$59.4 billion).
(Xinhua News Agency July 17, 2007)
