China injects more liquidity

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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