People’s Bank of China (PBOC) just conducted yet another round of liquidity injection through reverse repo.
PBOC conducted open market operations yesterday,
injecting RMB80 billion through 7-day reverse repo and RMB65 billion
through 14-day reverse repo. This brings the total injection through
reverse repo this week to RMB365 billion.
As previously noted, maturing repo, central bank
bills and reverse repo withdraw about RMB87 billion (net) for the week,
thus this round of reverse repo brings the net injection for the week to
RMB278 billion. The net liquidity provision for the week is at a level
not normally seen except around Chinese New Year.
This highlights the continued tight liquidity within
the banking system. We suspect that the continuous (but slow) apparent
money outflow plays a part in the recent tight liquidity (although other
factors might be in play, such as debt deflation and perhaps rising bad
debts, we are not too sure yet), which necessitates record amount of
injections. The total net liquidity injection since July is almost
equivalent to the liquidity that would have been freed up by one 50bps
cut in reserve requirement ratio, delaying the RRR cut further.
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