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China's Central Bank to Issue 3-year Bank Bills

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The People's Bank of China, China's central bank, said Wednesday it will issue 15 billion yuan (US$2.2 billion) of 3-year bank bills Thursday, another sign the government wants to tighten liquidity.

The central bank stopped issuing 3-year bills in June 2008 to reverse the economic slowdown.

"The resumption of the issuance of 3-year bills is the latest signal of liquidity tightening," said Liu Yuhui, an economist with the Chinese Academy of Social Sciences.

Experts said the resumption of 3-year bill issuance also relates to the country's recent strong economic data.

China's Purchasing Managers' Index (PMI) for manufacturing sectors, which is designed to provide a real-time snapshot of business conditions, rose to 55.1 percent in March, the 13th straight month the index has been above 50 percent.

A PMI reading above 50 percent suggests economic expansion, while one below 50 percent indicates contraction.

"The resumption in 3-year bill issuance shows the central bank has grown more confident about the economic recovery and is paying more attention to inflation," said He Yifeng, a researcher with the China Institute for Development and Reform at the Central University of Finance and Economics.

"It will help curb credit excesses and ease the pressures for asset price inflation," He said.

He also added the resumption does not rule out the possibility of further rises in deposit reserve ratios, even though the issuance of 3-year bills is an effective tool in curbing liquidity.

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

(Xinhua News Agency April 8, 2010)

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