BEIJING, Oct 29 (Reuters) - A Chinese central bank official speaking at a closed-door meeting with domestic money dealers on Tuesday reassured them that money conditions remain ample and it will keep its short-term monetary operations stable this year, as regulators move to improve communications with investors after short-term rates rose dramatically last week.
Four sources who attended the meeting declined to give the official's name due to the sensitivity of relations with the central bank and requested anonymity themselves because they were not authorised to speak to the press.
However, they said the official was involved in the management of open market operations, during which the bank drains and injects funds into the country's interbank market to control short-term interest rates and steer the country's money supply.
The official warned dealers that institutional investors should avoid excessive borrowing, or leverage, in the future to prevent short-term liquidity shortages from having too much impact on their cash conditions, the sources said.
The official said that last week's tight conditions were due primarily to market players underestimating the impact tax payments would have on short-term rates. The central bank had sat out three consecutive sessions of open market operations prior to Tuesday, when it injected a small amount of funds.
The central bank's passivity was unaccompanied by any public explanation, and a central banker told Reuters last week that regulators were considering tuning or tightening money supply given signs that price inflation and property prices were rising in an unsustainable fashion in September.
As a result short-term rates rose on Monday to their highest level since late June, when similar stand-offish behaviour from the People's Bank of China (PBOC) resulted in a cash crunch that saw some short term rates reach as high as 30 percent.
The official also said that the PBOC would conduct open market operations with an eye on liquidity conditions both at home and overseas, in particular on pressure applied to the monetary system from capital inflows.
(Writing by Pete Sweeney in Shanghai; Editing by Alex Richardson)