PBOC Expected to Keep Liquidity “Rationally Ample” in August

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The Chinese central bank is expected by domestic analysts to continue to maintain steady liquidity levels in the Chinese financial system in the month of August.

On 5 August the People’s Bank of China (PBOC) announced that it would undertake 10 billion yuan in 7-day reverse repo operations with an unchanged rate of 2.20%, for the purpose of “maintaining the rationally ample liquidity of the banking system.”

Zhang Xu (张旭), fixed-income analyst with Everbright Securities, said that in August PBOC would resume its custom of conducting daily 10 billion yuan reverse repo operations, after briefly stepping up its open market operations at the end of July.

On both 29 and 30 July PBOC undertook 30 billion yuan in reverse repo operations. Zhang said that the increase was for the purpose of addressing demand for funds from Chinese financial institutions, as well as maintaining rationally ample liquidity and stabilising market expectations.

Sun Binbin (孙彬彬), chief fixed-income analyst with Galaxy Securities, said that the availability of funds had remained steady in July chiefly due to a reduction in the reserve ratio in the middle of the month which unleashed long-term liquidity and ironed out volatility factors. Bond issuance by local governments also remained lower than expected.

On 15 July PBOC made an across-the-board reserve ratio cut which it estimates will free up 1 trillion yuan in long-term funds, as part of efforts to “increase the long-term, stable funds supply for financial institutions in supporting the real economy.”

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