The People’s Bank of China (PBOC) injected 176.5 billion yuan into the market via one-year medium-term lending facility (MLF) with interest rate keeping flat at 3.3 percent on September 7, offsetting the amount of capitals which matured on the day. It didn’t conduct any reverse repo. As of that day, it had suspended reverse repo for the 13th consecutive trading days, and it was the 8th trading days when there’s no liquidity injection and no capital withdrawal from the open market. Monetary interest rate fluctuated around policy interest rate.
Based on the recent monetary measures, the PBOC focused more on structural and precision adjustment while maintaining prudential and neutral policies. The measures such as MLF and reverse repo were precision adjustment to interbank liquidity.
Structural adjustment will be more refined
According to relevant reports, the PBOC restarted the targeted repurchase operation to some state-owned banks in August, while the last public market repurchase operation was in November 2014.
“The repurchase operation in August was a normal market behavior. At that time, the market interest rate and the open market operating rate were upside down. Big banks cost less if the PBOC recovers funds. The 7-day repurchase period was shorter, which did not interfere with liquidity management.” The head of a bond trading department of a stock exchange told reporters that the PBOC also intends to guide the market interest rate to a reasonable level.
In early August, the Shanghai Interbank Offered Rate (Shibor) went down sharply. Overnight, Shibor once fell to a three-year low of 1.42 percent. The 7-day Shibor reported a minimum of 2.345 percent, which was lower than the open market operating rate of 2.55 percent. After that, it quickly rebounded and ended the short-term upside down pattern.
In the view of the head of the financial market department of an urban commercial bank, adopting a targeted approach can avoid the obvious signal of releasing the tightening funds to the market. The liquidity is still reasonably sufficient. Meanwhile, the special bonds were also issued at the time.
In September sees a peak of special bond issuance. The total amount of local debt issuance in September will exceed August. According to Wind Info, the amount of local bonds issued in August reached 882.97 billion yuan. Banks are still the main force in the allocation of local debt.
The above-mentioned people further stated that the PBOC pays more attention to the structural adjustment of liquidity. On the one hand, it must ensure that liquidity supports the development of the real economy and avoid new credit defaults. On the other hand, it is necessary to control total money supply in the market and prevent excessive funds.
Guide fund flowing to real economy
The PBOC conducted the same amount of MLF on the expiration of the first MLF this month.
Liu Yu, a fixed-income analyst at Guosheng Securities, believes that the same amount of MLF conveys two signals. On the one hand, as it comes to tax period in September, the PBOC will mainly inject short-term funds via reverse repurchase. On the other hand, there will also be a second MLF operation in late September, which will help institutions to smoothly cross the season.
Since the beginning of this year, the frequency of targeted RRR and MLF operations has increased significantly. Medium and long-term liquidity has become the main force for capital investment. Ming Ming, the chief fixed income analyst of CITIC Securities, believes thatwhile making up the liquidity gap, matching the long-term credit assets of banks is a measure to further support bank credit expansion.
He analyzed that in fact, narrowing the spread is the first step to promote bank credit expansion. Through market-based profit pressure, commercial banks are forced to find other higher-yield assets. Through targeted credit policies and regulatory support, they have cleared credit. The path of expansion has enabled credit to support the real economy.
Translated by Coral Zhong
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