The People’s Bank of China has resumed open market operations to offset a wave of maturing repo agreements following a 12 day spell of absence.
On 11 July the Chinese central bank engaged in 40 billion yuan of repo operations via unction, consisting of 30 billion in 7 day repos at a rate of 2.45% and 10 billion in 14 day repos at a rate of 2.6%
PBOC’s open market operations on Tuesday perfectly match the 400 billion yuan in repo agreements slated for maturation on the same date.
The central bank had previously refrained from open market operations for a total of 12 consecutive trading days, triggering concerns amongst market observers about tightened liquidity at the start of the second half.
PBOC itself alluded to declining liquidity in the banking system in its latest pronouncements, referring to levels as “slightly high” on 7 July, before calling it “appropriate” on the following trading day of 10 July.
While SHIBOR saw an overall modest declines on Monday, the overnight rate edged higher 1.6 basis points to 2.549%.
Given current trends in monetary policy, expects market liquidity to maintain a “tight balance,”
Given China’s incomplete deleveraging campaign, modest short-term pressure on the economy as well as marginal tightening in the monetary policies of other major economies, Huabao Securities’ fixed-income research team expects PBOC to continue to maintain a “neutral” monetary policy in the second half of 2017 with no large-scale loosening or tightening, and for liquidity to remain a state of “tight balance.”