People’s Bank of China

Americans are again clamouring for a rise in the renminbi. First, the moral argument: keeping the currency pegged at about 6.83 to the dollar lends Chinese exporters an unfair advantage, critics argue, increasing the Chinese trade surplus. Second, the pragmatic argument: China will have to let the yuan appreciate to combat inflation.

Today, the counter-arguments. Read more

The People’s Bank of China’s current account increased by 69 per cent during 2009, ending the year at $42.6bn, while its financial account enjoyed a net inflow of $14bn, the first net inflow since 2005. Taiwan News said the record balance surplus reflected an increase in the bank’s reserve assets – which are likely to rise further this year as China uses banks’ reserve ratios as a means to limit the amount of money in the economy. The last such move was on February 18.

China’s central bank has raised the yield on one-year government debt to 1.9264 per cent, significantly above forecasts, which were in the  1.84 – 1.89 per cent range. The People’s Bank of China auctioned 24 billion yuan ($3.5 bn) of one-year bills at 1.9264 per cent, up 8 basis points from last week’s level of 1.8434 per cent.

The rapid yield increase shows quicker-than-expected tightening from the Chinese central bank. Increasing the yield makes debt more attractive to investors, taking more money out of the system and into the central bank. “The central bank wants to lock up funds for a longer period because of concerns of the risk in inflation in the longer term,” a trader at a major Chinese bank in Shanghai told Reuters. Read more

The People’s Bank of China will today drain 75bn yuan from the money market through 28-day bond repurchase agreements (repos). Only 40bn yuan in central bank repos mature this week, so the move will tighten up the Chinese economy.

While excess liquidity is mopped up, however, the central bank continues to issue bills. In today’s regular market operation, 12bn yuan one-year bills were bought at a yield of 1.7605 per cent. The yield has remained at this level since August of last year.

Protectionism a likely US-China theme at the G20; domestic vs. imported inflation; the drop in US consumer debt explained; and continuing falls predicted for UK housing Read more