The People's Bank of China (PBOC), or the central bank, further tightened excessive liquidity stemming from Chinese banks this week through regular open market operations that ended Thursday. In its open market operations on Thursday, PBOC auctioned 47 billion yuan (7.16 billion U.S. dollars) of three-month bills and sold another 30 billion yuan of repurchase agreements.

Also on Tuesday this week, PBOC issued 50 billion yuan one-year bills and sold 28-day repurchase agreements worth 85 billion yuan. Offsetting the 109 billion yuan of bills and repurchase agreements that matured, PBOC took 103 billion yuan of liquidity out of the money market this week, compared to previous week's tightening of 49 billion yuan.

Yield of the three-month bills stood unchanged at 2.7944 percent from previous week, while the interest rate of the 91-day repurchase agreements remained steady at 2.8 percent. The central bank's further tightening followed PBOC's move last Friday to raise banks' reserve requirement ratio by 50 basis points, ordering Chinese major banks to keep a record high of 20 percent of their deposits as reserve.

The new reserve requirement, effective as of Friday this week, will lock up another 360 billion yuan. Analysts said PBOC is determined to continue its control over the banking system's lending activities.

"Though new loans fell significantly in February, the rapid growth of funds outstanding for foreign exchange is hard to reverse within a short period of time," said E Yongjian, an analyst of Financial Research Center with the Bank of Communications.

Chinese banks made a lower-than-expected of new yuan-denominated loans at 535.6 billion yuan in February, 192.9 billion yuan less than February last year. "The bills and repurchase agreements that mature in March and April both exceed 600 billion yuan, adding to the central bank's pressure to withdraw liquidity from the market," he added.