The Chinese central bank has stepped up the activity levels of its open market operations since the start of 2021, with a lengthy run of consecutive trading days during which it’s undertaken reverse repos.
On 27 April the People’s Bank of China (PBOC) undertook 10 billion yuan in reverse repo operations with a bid rate of 2.2%, as part of efforts to “maintain rationally ample liquidity in the banking system.”
A report from Securities Daily indicates that as of 27 April PBOC had engaged in reverse repo operations for 79 consecutive trading days, including 19 consecutive trading days in April.
Figures from China’s National Interbank Funding Centre indicate that Shanghai Interbank Offered Rates (SHIBOR) of all tenors saw declines for 27 April, including a 26.1 basis point decline in the overnight SHIBOR to 1.814%, which had a five day average of 1.9952%, a 10 day average of 1.9568% and a 20 day average of 1.9043%.
The depository institution 7-day collateralised repo rate (DR007) – a key measure of the price of money in the Chinese financial system, held steady at 2.2087% on 27 April, with a five day average of 2.166%, a 10 day average of 2.1352% and a 20 day average of 2.0359%.
Fan Ruoying (范若滢), a researcher with the Bank of China, said that fiscal expenditures at the end of the first quarter had served to supplement usable funds for the market, serving to strengthen resistance to seasonal disruptions such as tax payments.
The pace of this year’s local bond issues has also been slower than in previous years, and fiscal factors have not had as large an impact on funds.
Fan expects special bond issuance by local governments to step up after May, with PBOC likely to resort to reverse repos and medium-term lending facilities to step up liquidity injections in stages, in order buffer the tightening impact of bond issuance on the availability of funds.