(Yicai Global) July 27 -- As CNY400 billion (USD56 billion) of medium-term lending facility loans come due next month, a cut in China’s reserve requirement ratio, the percentage of assets that commercial banks must not lend out, is still expected this quarter despite the People’s Bank of China scaling up its reverse repurchase operations this week, according to economists.

Excluding the seven-day reverse repos worth CNY112 billion that will expire this week, net investment stands at CNY164 billion as of today.

The PBOC carried out a seven-day reverse repo operation worth CNY114 billion in the inter-bank market today to keep liquidity stable at the end of this month, with the interest rate unchanged from the day before at 1.9 percent, it announced today.

Since the start of this week, the PBOC has stepped up its reverse repurchase operations day by day: CNY14 billion (USD2 billion) on July 24, CNY44 billion on July 25, CNY104 billion yesterday, and CNY114 billion today.

Reverse repos worth CNY33 billion, CNY15 billion, CNY25 billion, CNY26 billion, and CNY13 billion have come due or will come due from July 24 through tomorrow.

Market interest rates have climbed recently, mainly due to the increase in the inter-month funding needs of financial institutions, Zhou Maohua, a macro researcher at China Everbright Bank’s financial markets department, told Yicai Global. The PBOC moderately strengthened its reverse repo operations yesterday to meet short-term demand for funds and curb capital-related fluctuations, Zhou added.

The Political Bureau of the Central Committee of the Communist Party of China, the country’s top leadership group, met earlier this week and signaled once again the need to implement precise and effective economic control and enhance counter-cyclical adjustment and policy reserves.

Maintaining reasonable and sufficient market liquidity will help the transmission of traditional monetary policy and boost the loose credit of financial institutions, Zhou noted. Factors such as faster issuance of special local government bonds and the maturity of MLF loans will disrupt the liquidity balance in the short run, Zhou pointed out.

The PBOC is expected to maintain reasonable and sufficient liquidity through RRR cuts, MLF loans, open market tools, and flexible operations, according to Zhou.

There is scope for lowering interest rates and the RRR, as goods prices will continue to be moderate in the second half, said Wang Qing, chief macro analyst at Golden Credit Rating International. To support banks in expanding credit this quarter, an RRR cut is very likely before the end of September, and the rate of MLF loans may fall in the fourth quarter, Wang added.

Lending and social financing maintained fast growth last month, and both corporate and household financing picking up, Zhou said, noting that in the second half, the possibility of an RRR cut will be greater than that for interest rate reductions.

Editor: Martin Kadiev