NEW YORK -- China's decision Thursday to raise the yield on its three-month bills sends a clear signal to the country's banks to avoid excessive lending in 2010.
By hiking the rate to 1.3684% from 1.3280%, the first increase in nearly five months, China emphasized its determination to tackle the fallout from the government's economic stimulus program that resulted in a massive surge in bank lending last year.
But despite a pessimistic reaction in some financial markets, it doesn't necessarily follow that an adjustment to a weekly money market operation means the government will suddenly tighten credit in the world's third-largest economy.
Specifically, China is telling its banks the central bank doesn't want to see an orgy of casual credit during the first months of the year in anticipation of tighter rules later on. It is also taking concrete steps to mop up some of the excess liquidity sloshing around its financial system because of indiscriminate lending in 2009.
