Chart: PBOC has turned from sterilising inflows to providing liquidity18 July, 2012, 13:28. Posted by Zarathustra
Michael McDonough of Bloomberg Brief (you must follow him on twitter) has posted this interesting chart showing that the People’s Bank of China has turned away from sterilising capital inflow to providing liquidity.
Source: Bloomberg Brief
You can read more on this topic from our ultimate guide to China’s monetary policy tools. But to cut the long story short, the central banks creates money in order to keep Chinese Yuan from appreciating too quickly when inflows are strong. The central bank then attempts to “sterilise” the inflow through RRR hikes and short-term bills issuance. As the economy slows and inflows weaken (and turns into occasional outflow), the central bank has to shift gear to release liquidity previously “locked-up”, so to speak.