The PBOC had already drained 80 billion yuan (US$12 billion) in its regular open market operations on Tuesday through 28-day bond repurchase agreements and auctioned another 60 billion yuan (US$8.8 billion) of one-year bills in its regular open market operations

This week the PBOC has taken 110 billion yuan (US$16 billion) out of the market after hedging matured bills and bonds, the seventh straight week of heavy drains in the open market operations.

China is yet to publish its economic data for the first quarter, but economists predicted robust growth with low inflation in the first three months.

"The growth of gross domestic product, the industrial value added and corporate profits were all at record lows during the same period of last year," said Lian Ping, chief economist of Bank of Communications. "Given this low basis, the economy will definitely see an accelerating growth year on year in the first quarter."

Lian said the strong growth in the first quarter was attributable to last year's excessive supplies of money and credit, which would increase pressure to curb excess liquidity and inflation.

"The resumption of the three-year bills issuance is the central bank's forward looking policy to control liquidity in the market in proper time and to an appropriate extent," Lian said.

History showed the PBOC usually resorted to three-year bills to control liquidity when China's economy showed signs of excessive liquidity and inflation hikes.

The central bank issued three-year bills from December 2004 to July 2005, and January 2007 and June 2008, periods when China was at great risk of an accelerating economy with excess liquidity and soaring inflation.

"Excessive money supply will certainly cast a shadow of inflation in the future," said Zhou Qiren, a noted economist and a member of the PBOC's Monetary Policy Committee. "A timely and rational control of liquidity will help contain the inflation hikes in the future."

The Chinese government ordered banks to increase their reserve ratios to 16.5 percent in February, the third such rise since December last year, to ease inflationary pressure.

(Xinhua News Agency April 8, 2010)