CHINA’S central bank said Wednesday it had converted 19 types of bond repurchase agreements worth more than US$20 billion into short-term financial debt to help it control the country’s money supply.

　　Analysts said the move strengthened the central bank’s open market operations and the new supply of short-term bonds could boost trading activity in the growing debt market.

　　The People’s Bank of China (PBOC) had been trying to tighten money supply since late June through bond repos because the country’s healthy external trade surplus had resulted in a lot of liquidity in the banking system, bankers said.

　　The central bank has siphoned 193.75 billion yuan (US$23.40 billion) from the Shanghai-based national interbank market using repos, whereby it borrows money from banks using treasury and other financial bonds as collateral.

　　A repo is an agreement to buy back the bonds on a set day.

　　The central bank said it had converted all repo agreements from June 25 to Sept. 24 into short-term bills to be repaid within one year.

　　This was the first time the central bank turned repos into debt since it launched open market operations in April 1996 to help adjust money supply.

　　The central bank now fixes bank interest rates for yuan deposits and sets lending rates which banks can make marginal adjustments to.

　　The benchmark M1 supply, which covers currency in circulation and institutional demand deposits in China, rose 17 percent in July, from a year earlier, before falling back to14.6 percent in August. China has said it wants to keep money supply growth between 14 and 15 percent.

　　“The new debts will enhance the central bank’s ability to conduct open market operations, which have so far been affected by a lack of bonds on hand,” said Zhou Li, a senior financial analyst at Guotai Jun’an Securities.

　　“The interbank market now lacks short-term bonds,” said Wang Ning, an official from the Capital Department of the Bank of China, the country’s largest foreign exchange bank.

　　Banking analysts said the central bank may be testing the water before issuing debt on a larger scale, to create a liquid market that can serve as a benchmark for short-term deposit rates.

　　(SD-Agencies)