The People’s Bank of China made net injections of 60 billion yuan on 20 July, for the fourth consecutive day of liquidity increase.
PBOC engaged in 60 billion yuan of repo operations, comprised of 40 billion yuan in 7-day contracts and 20 billion yuan in 14-day contracts.
Given that no repo agreements matured on the same date, PBOC’s open market operations have resulted in a net injection of 60 billion yuan, for the fourth consecutive day of net liquidity increase.
The Chinese central bank has implemented successive monetary increases via open market operations since the start of this week, with a net injection of 140 billion yuan – the highest single day amount for the month – on 17 July, a net injection of 130.5 billion yuan on 18 July and a net injection of 100 billion yuan on 19 July.
PBOC has pursued this slew of next injections in order to offset the impact on the money supply of July tax payments, as well as the maturation of successive waves of repos and medium-term lending facilities.
According to market observers the conclusion of the tax payment period and the recent succession of liquidity injections have served to relieve monetary tightness, with the central bank gradually dialling down the scale of increase this week.
Short-term liquidity could face further tightening in the final third of the month, however, as commercial banks distribute overseas dividends, which may prompt further injections from the central bank.
Sun Binbin of Tianfeng Securities said that the central bank’s current operations are close to “actual neutrality,” and “neither loose nor tight.”
Looking ahead, while PBOC is unlikely to make any changes to the fundamental tenure of monetary policy, pressure on the Chinese economy may prompt slight adjustments via open market operations.
Ongoing declines in the growth of the M2 money supply have also led to significant deleveraging, which means there is less need for further tightening of monetary policy