PBOC withdraws liquidity

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Yesterday the People’s Bank of China conducted a total of RMB95 billion of reverse repo, according to a central bank announcement.

PBOC conducted RMB55 billion of 7-day reverse repurchase operation at 3.4%, and RMB40 billion of 14-day reverse repurchase operation at 3.5% interest rate. The rate for 14-day reverse repo has been reduced from 3.55% of last week.

After routine injections of large amounts of liquidity by the PBOC, liquidity conditions appear to have been eased finally. The chart below shows Shanghai Interbank Offered Rate curve of today vs. 22 Aug. The short-end has come down significantly.

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Including today’s operation, PBOC will still be withdrawing liquidity as more reverse repos are maturing. We expect one more operation on Thursday, yet the amount of injection will not be as large as some of the operations we saw some weeks ago.