China central bank says can use forex swaps as open market tool - UPDATE

BEIJING (XFN-ASIA) - The People's Bank of China can transact a foreign exchange swap at any time as part of its open market operations, central bank vice governor Wu Xiaoling said.

Asked at a conference here whether the PBoC will roll over a 6 bln usd one-year yuan-dollar swap at 7.8500 that falls due on Saturday, Wu replied: 'the PBoC can do a foreign exchange swap again, it's a tool for open market operations.'

Asked whether the narrowing of the Chinese-US interest rate spread would make pricing of a new swap more difficult, Wu responded: 'The price will be decided by the market.'

Earlier, reports cited Asian traders and analysts as saying they expect the PBoC to let the 6 bln usd (47 billion yuan) swap expire to help ease current tight Chinese money market conditions.

However, given a flood of funds expected to enter the market by the end of the year, the traders also said they expect the PBoC to enter into a new swap early next year to soak up excess liquidity.

[e-mail]