China’s central bank said that the level of liquidity in the national banking system has returned to standard and “appropriate” levels in the wake of recent interventions.
A report released by the People’s Bank of China on 19 May indicated that it would be refraining from open market operations because liquidity is currently at an appropriate level.
20 billion yuan in repo agreements matured on 19 May, resulting in a net funds withdrawal of 20 billion yuan.
Market participants have recently expressed concern about tightened liquidity as a result of deleveraging flagged by PBOC earlier this year, as well as a sustained crackdown on the lending sector launched by the China Banking Regulatory Commission.
CSC Financial fixed income analyst Huang Wentao said to Caixin that are still no signs of a loosening in monetary policy from PBOC, and that deleveraging would continue to remain the abiding theme of policymakers.
He further noted that amidst the process of self-inspection mandated by CBRC as part of its crackdown on the lending sector, there would at the very least be no expansion in the participation of banks in money markets.
For this reason he expects markets to continue to face the “ongoing pain” brought by the “gentle deleveraging” process mandated by China’s financial regulators.