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Feb. 6, 2012, 11:20 p.m. EST

China central bank move could be hawkish signal

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By Chris Oliver

HONG KONG (MarketWatch) -- The People's Bank of China appeared to signal intentions to keep liquidity tight in the money markets Tuesday by reportedly absorbing 26 billion yuan ($4.1 billion) through 28-day bond repurchase agreements, a move that suggested hopes for an easing of bank reserve requirements may have to wait. About 2 billion yuan in central bank notes are due to mature this week, which means the PBOC's move amounts to a net withdrawal of liquidity, reports said. Credit Agricole CIB analyst Frances Cheung said the news dashed hopes that authorities are preparing to lower the required reserve ratio on domestic banks to bolster funds circulating in the banking system. "Policy makers have been very cautious towards policy easing, possibly mindful of inflationary pressures," Cheung said in a note Tuesday. However, a Dow Jones Newswires report also said that a routine short-term bill offering was cancelled for a fifth week, a move that would result in more rather than less liquidity.

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