The Chinese central bank made its first net liquidity injection via open market operations in more than half a month on Tuesday, 12 March.
The People’s Bank of China announced that it undertook 90 billion yuan of repo operations on 12 March, comprised of 50 billion yuan in 7-day contracts and 40 billion yuan in 28 day contracts, for a net injection of the same amount given that no central bank repos matured on the same day.
Tuesday marked the first time since 26 February that the Chinese central bank has made net injection of liquidity.
PBOC said that the open market operations were intended to “offset the impact of factors such as the taxation period, and preserve the rational stability of banking system liquidity.”
The central government has flagged stable and neutral monetary policy for 2018, with this year’s Government Work Report stating that “stable monetary policy will maintain neutrality, and be loosened or tightened as appropriate.”
Huang Zhilong (黄志龙), chair of the Macro-economic Centre at Suning Finance, told Securities Daily that PBOC’s latest net injection “clearly demonstrates a monetary policy orientation of appropriate loosening and tightening.”
Huang further points out that the 2018 Government Work Report states that China will maintain “rational growth in the broad M2 money supply, lending and total social financing,” as well as “the rational stability of liquidity.”
According to Huang this means that there is little likelihood of further tightening of monetary policy, or a sustained rise in market interest rates.