The banks, in turn, have struggled to lend these deposits to businesses. Many companies, pessimistic about the economy, are reluctant to borrow. Stuck with ever-rising deposits, the banks have invested the money in bonds.
This has driven up the price of bonds, which drives down the interest that bonds yield.
By temporarily suspending its own purchases of government bonds, the central bank is removing one source of demand for bonds. That could slow the rise in bond prices and decline in interest rates.
“The operations will be resumed at an appropriate time depending on the supply and demand conditions in the government bond market,” the central bank said.
The decision by the central bank, the People’s Bank of China, was notable because central banks facing weak growth usually buy bonds to pump money into an economy. This is what the Federal Reserve did during the global financial crisis 16 years ago and other recent financial upheavals.
The People’s Bank of China itself said six days earlier that it would make ample money available for economic growth. China will “implement a moderately loose monetary policy, so as to create a suitable monetary and financial environment for stable economic growth,” the central bank said on Jan. 4.
