The yield of the 1-year central bank note dived 10 basis points yesterday, indicating that the central bank may loosen its monetary policy once again, reports Shanghai Securities News.

On October 7, the central bank issued 80 billion yuan of 1-year central bank notes in its regular open market operations, with a yield of only 3.9069 percent, 10 basis points lower than that of last week. The 1-year central bank note is not only a tool to drain liquidity, but also a pricing benchmark for the interest rate mechanism of the capital markets. Generally speaking, its changes have always been indicating the trend of the central bank's monetary policy.

Since the last week of September, the central bank has injected a total of 550 billion yuan into the banking system. However, under the influence of overseas financial turbulence, domestic financial institutions are treating the financing moves of foreign banks with caution, which caused the liquidity to flow from the repurchase market to cash transactions. The 1-year central bank note became a favorite among financial institutions, and increasing demand was bound to cause a drop in its yield.

This loose capital environment did not begin this week. Since the middle of September, market liquidity has been gradually increasing with the yield of the 1-year central bank note sliding only 5 basis points altogether in two weeks. It dropped just 2 basis points last week when 185 billion yuan was released onto the open market. But it plummeted dramatically by 10 basis points this week.

For more details, please read the complete story in Chinese:

(http://paper.cnstock.com/paper_new/html/2008-10/08/content_65515957.htm)

(China.org.cn by Fan Junmei October 8, 2008)