Net Liquidity Injections Via Reverse Repos Hit One Month High with 300 Billion Yuan in Sales

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The Chinese central bank has taken one day liquidity injections via reverse repos to a month-long high via 300 billion yuan in sales.

The People’s Bank of China sold a total of 160 billion yuan in 7-day reverse repos and 140 billion yuan in 14 day reverse repos on Wednesday 18 October.

Given that a total of 30 billion yuan in reverse repo agreements matured on the same day, this translates into a net injection of 270 billion yuan via the short-term instruments, for the highest level since 18 September.

According to PBOC’s flagship news publication Financial News a total of 525.5 billion yuan in central bank instruments were scheduled to mature this week, including 80 billion yuan in 7-day reverse repos, 90 billion yuan in 28 day reverse repos, as well as 128 billion yuan in medium-term lending facilities on 17 October and a further 227.5 billion on 18 October.

Financial News said that in order to stabilise market liquidity and guide rational expectations, the central bank has used reverse repos to make net liquidity withdrawals since the end of the October holiday, while simultaneously releasing liquidity via MLF’s.

From 9 – 13 October PBOC withdrew a total of 240 billion yuan via the maturation of reverse repos, while adding 498 billion yuan in liquidity via one year MLF’s at a rate of 3.2%.

CITIC Securities said that the 498 billion yuan in MLF serve to offset the maturation of 439.5 billion yuan in the instruments this month, adding a total of 58.5 billion yuan in medium and long-term capital.

PBOC said that the move demonstrates its commitment to maintaining liquidity, and will help to further stabilise market expectations.

According to CITIC Securities PBOC’s policy of “locking in the short-term and releasing the long-term” serve as the key guidance behind the MLF rate of 3.2%.

CITIC Securities points out that open market operations by PBOC this month are serving to almost completely offset maturing instruments, with the central bank stating that stable and neutral monetary policy will remain unchanged.

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