(Yicai Global) July 26 -- The People’s Bank of China has injected liquidity after corporate tax payments and other factors caused a sudden sharp tightening in the money market. Liquidity has gradually improved this week following the increase and the end of the tax period.
Money market interest rates rose across the board last week and the central bank immediately increased liquidity efforts to stabilize fluctuations. It initiated reverse repurchase operations totaling CNY710 billion (USD104.4 billion), with an actual net investment of CNY470.5 billion after the reverse repurchase was hedged and medium-term lending facility had expired. The week set the highest single-week investment since Chinese New Year at the end of January.
Maturity is still struggling this week, with a total of CNY678.5 billion of funds due. These include a CNY500-billion seven-day reverse repo, a CNY40-billion 14-day reverse repo and a CNY138.5-billion six-month MLF due to expire between Wednesday and Friday.
Since late July, the central bank’s open market has maintained a fairly relaxed state of funds, which may be to ease the local debt repayment related to the half-year end and monthly tax payments, said Ming Ming, chief fixed income analyst at CITIC Securities.
The central bank may need to focus second half monetary policy on the steady growth of the real economy, said Lian Ping, chief economist at the China Bank of Communications. Given not only the recent apparent tightening of liquidity and marked increase in interest rates in the money market, but also the fact that bank lending rates have also begun to rise, monetary policy should be eased.Keywords: monetary policy, pboc, Interest rate, Liquidity