Seasonal growth in China’s fiscal expenditures has helped to push overall liquidity higher despite an ongoing deleveraging campaign by financial regulators.
The People’s Bank of China’s Open Market Operations Office announced on 23 June that strong fiscal expenditures in the run up to the end of June in combination with its offsetting of expiring repo agreements had lifted liquidity to comparatively high levels, and that it would refrain from further action.
China’s central bank withdrew 60 billion yuan in liquidity this week via open market operations, after making injections of 410 billion yuan last week.
PBOC endeavoured to shore-up cross-seasonal liquidity earlier this month by means of large-scale monetary injections using medium-term lending facilities as well as 28-day reverse repo agreements.
While market participants have complained that China’s ongoing deleveraging campaign has throttled liquidity and hit stock, bond and property markets hard, a report released by Shenwan Hongyuan’s fixed income department said that the funds supply remains ample overall, likely as a result of concentrated allocations of fiscal expenditures in June as well as ample liquidity in the banking system.
China’s fiscal expenditure and government deposit fluctuations are highly seasonal in nature, with expenditures usually concentrated in February, June, September and December, leading to large-scale declines in deposits at such times.