Liquidity to Come Under Modest Pressure in April Following Funds Contraction of 30 Billion Yuan in March

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Liquidity in the Chinese finance system is expected to come under modest pressure in the month of April as a result of a range of actors following a modest net contraction in funds in March.

The month of March saw a net funds contraction of 30 billion yuan, with the People’s Bank of China (PBOC) conducting 230 billion yuan in reverse repo operations and 100 billion yuan in medium-term lending facilities (MLF’s), against the maturation of 260 billion yuan in reverse repos and 100 billion yuan in MLF’s.

Domestic observers foresee some liquidity pressure in April due to factors including a marked contraction in funds as a result of tax payments – the average of which has stood at around 710 billion yuan in normal years, as well as the advance issuance of new local government bonds and an increase in the number of interbank certificates of deposit scheduled to mature.

Zhou Maohua (周茂华), financial markets analyst with China Everbright Bank, said to central bank media that the volume of open market instruments maturing in April is not too sizeable however, and that PBOC would make flexible adjustments to keep funds on an even keel this month.

PBOC said in its monetary execution report for the fourth quarter of 2020 that observers and market participants should not “focus excessively on the volume of open market operations,” which would be flexibly adjusted on the basis of multiple provisional factors as well as market demand conditions.

According to PBOC such changes were not full reflections of market interest rate trends, and did not represent changes to central bank policy rates.

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