The People's Bank of China, the central bank, issued three-month bills of 50 billion yuan (US$7.3 billion) yesterday at a yield of 1.0053 percent, much lower than market expectations.

It exemplified China's firm belief in low interest rates and looser monetary policies at least in the first quarter of next year, analysts said.

The yield of three-month bills issued yesterday was 0.1209 percentage points lower than the 1.1262-percent yield of the last auction of such bills two weeks ago.

The market had expected the yield to remain largely unchanged while the actual yield was also much lower than the indicative yield of 1.0820 percent, a bid posted on Wednesday in the secondary market.

"It is a sign that the central bank will stick to a relatively loose monetary policy and may cut the interest rates further to support market growth next year," said Li Maoyu, an analyst with Changjiang Securities Co.

The central bank announced its fifth interest rate cut in three months on Monday. The benchmark one-year lending and deposit rate both dropped by 0.27 percentage point and fell to 5.31 percent and 2.25 percent respectively.

The central bank also carried out another reduction of 0.5 percentage point in its banking reserve requirement ratio, unlocking up to 300 billion yuan for possible lending by financial institutions.

Li estimated there would be more cuts in interest rates by the second half of next year hitting a total of about 54 basis points, depending on the country's economic situation.

China has set a growth target for next year at about 8 percent.

(Shanghai Daily December 26, 2008)