Chinese and Japanese central banks move to reduce liquidity
BEIJING: Central banks in China and Japan drained funds from the financial system Friday after counterparts in the United States, Australia and Europe made more cash available to lenders.
The Peoples Bank of China sold 151 billion yuan, or $20 billion, of three-year bills to siphon off excess funds that are spurring lending and investment. The Bank of Japan drained 200 billion, or $1.7 billion, and has withdrawn a net 400 billion this week.
The spread of losses on securities tied to U.S. home loans has made U.S. and European banks reluctant to lend, prompting monetary authorities to add or reduce money to keep overnight interest rates to their targets. China, by contrast, on Thursday increased the amount of funds banks must set aside for a seventh time this year to cool economic growth after raising interest rates four times.
“China has not been affected by the credit-market problem in the U.S.,” said Grace Ng, an economist at JPMorgan Chase in Hong Kong.
Japans market operation was intended to push up the rate for overnight call loans between banks and other financial institutions closer to its 0.5 percent target from 0.42 percent Thursday.
“Liquidity has continued to increase rapidly since the second half of last year,” Zhou Xiaochuan, the central bank governor, said Friday in an interview.
Japan is struggling to emerge from a decade of deflation, keeping interest rates at the lowest in the industrialized world to spur expansion. Chinas economy, the worlds fastest-growing, has plenty of cash from a record trade surplus, making it difficult for the government to slow growth.
Moodys Investors Service, a rating company, said this week that Asian companies will be protected from the credit-market rout because they can obtain funding from banks and local bond markets.
The European Central Bank left its key interest rate unchanged Thursday after pumping \42.25 billion, or about $58 billion, into the market as borrowing costs reached the highest in six years. The U.S. Federal Reserve added $31.25 billion to its system, the most in almost a month. Korean rate left at 5 percent
South Koreas central bank kept its key interest rate at a six-year high as policymakers gauged how the U.S. housing recession would affect the economy, Bloomberg reported from Seoul.
The Bank of Korea left the overnight call rate at 5 percent, as expected. The bank raised rates in August to curb an expansion in household debt that may fuel asset-price bubbles.
