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Tightening seen as PBOC mops up cash

Grace Cao

Wednesday, February 20, 2013

The mainland central bank has drained funds from the domestic money market for the first time in eight months in a clear sign of monetary tightening.

The People's Bank of China yesterday mopped up 30 billion yuan (HK$37.2 billion) via its 28-day repurchase rate.

But analysts cautioned against interpreting the move as long-term strategy, saying the PBOC will for now continue to maintain its loose monetary policy in place for the past two years.

"January new credit is oversupplied and inflation seems to be returning. It's time to draw back money from the market," fixed-income securities analyst Song Qiuhong told Xinhua News Agency.

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Inflation this month is tipped to rise by 3 percent on-year after a 2 percent rise in January on increasing food prices. Home prices have also risen since mid-2012 and new cooling measures are expected.

Kunshan, a city in Jiangsu close to Shanghai, raised the requirement for those seeking subsidized housing, China Business News reported. This comes after Dongguan in Guangdong and Jinhua in Zhejiang cut the share of state subsidized housing funds that can be used for mortgage payments.

Bloggers speculated that for second homes nationwide, the downpayment will be raised to 70 percent of unit value from the current 60 percent.

However, several big banks including the Industrial and Commercial Bank of China (1398), Bank of China (3988) and China Merchants Bank (3968) denied media reports of being told to boost downpayment requirements for home buyers.

Shares of most Hong Kong-listed mainland developers fell on the rumors. China Resources Land (1109) slumped 4.4 percent, while both China Overseas Land & Investment (0688) and Shimao Property Holdings (0813) lost 3.3 percent.

The PBOC mop-up hit mainland shares, with the Shanghai Composite Index down 1.6 percent to 2,382.91 in the worst two- day start to the Lunar New Year since 2007.


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