China's central bank drains 20b yuan from mkt

July 03, 2018 00:00:00

BEIJING, July 02 (Xinhua): China's central bank drained 20 billion yuan (about 3 billion US dollars) from the financial system on Monday to ensure stable liquidity.

The People's Bank of China (PBOC) didn't pump any money into the market through reverse repos on Monday, with 20 billion yuan in contracts maturing, leading to a net withdrawal of 20 billion yuan.

The PBOC said that a relatively high liquidity level in the banking system can offset the impact of maturing securities.

A reverse repo is a process by which the central bank bids and buys securities from commercial banks, with an agreement to sell them back in the future.

The PBOC announced last month that it would cut the reserve requirement ratio (RRR) for some commercial banks by 50 basis points, expecting to release a total of 700 billion yuan into the banking system.

PBOC said the cut, the third this year following reductions in January and April, was "a targeted, precision regulation" to boost funding for small and micro firms as well as to support the debt-to-equity swap program. The cut will take effect on July 05.

China will maintain a prudent and neutral monetary policy in 2018 as it balances growth and risk prevention.

Meanwhile, the central parity rate of the Chinese currency renminbi, or the yuan, strengthened 9 basis points to 6.6157 against the US dollar Monday, according to the China Foreign Exchange Trade System.

In China's spot foreign exchange market, the yuan is allowed to rise or fall by two per cent from the central parity rate each trading day.

The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.

The central parity rate of the yuan against the Hong Kong dollar is based on the central parity rate of the yuan against the US dollar and the exchange rate of the Hong Kong dollar against the US dollar at 9 am in international foreign exchange markets on the same business day.