China’s central bank provided 498 billion yuan via medium-term lending facilities for a term of one year on 5 June, in order to compensate for MLF set to mature during the course of the month.
According to analysts the People’s Bank of China is seeking to provide cross-seasonal liquidity support with both its MLF operations and the resumption of 28 day repos, which will be of benefit to stabilising market expectations.
The Chinese central bank has resumed net injections of liquidity via open market operations since the start of the month, as well as made adjustments to the structure of its repo portfolio with a shift to 7 and 28 day maturities.
Analysts believe this the renewed emphasis on 28 day repos is intended to signal the preservation of stable liquidity as we advance into the second half of 2017 and calm market expectations, while the 7 day repos give PBOC the ability to quell any short-term liquidity.
No extreme fluctuations in mid-year liquidity are anticipated given the proactive response of financial institutions as well as the provision of appropriate levels of quantitative support by PBOC.
PBOC itself previously stated that it was well aware of market concerns about capital availability at the end of the second half, and would undertake MLF operations in the middle of June as well as 28 day repo operations to smooth out cross-seasonal liquidity.
A research report from China International Capital Corporation notes that the historical pattern has been for funds to tighten in June, and regulatory agencies to increase net monetary injections in order to smooth out liquidity fluctuations.
Additionally, capital availability may benefit from waning expectations of RMB depreciation that put Chinese foreign reserves back on an even keel, as well as effective deleveraging amongst non-bank financial institutions.