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The central bank made it clear that the MLF that expires on August 15 will be renewed on August 26.

In order to hedge the impact of factors such as the maturity of the medium-term lending facility (MLF), the peak tax season, and government bond issuance payments, and maintain a reasonable level of liquidity in the banking system, the People's Bank of China (hereinafter referred to as the "PBOC") conducted a reverse repurchase operation of 577.7 billion yuan on August 15 using a fixed interest rate and quantity bidding method.

As 7.1 billion yuan of reverse repurchases matured on August 15, the central bank injected 570.6 billion yuan through open market reverse repurchases on the same day. There were also 401 billion yuan of MLFs that matured on August 15, and the central bank made it clear that the MLFs that matured on that day would be renewed on August 26.

In the past month, the central bank has added another MLF operation window on July 25, based on the usual MLF operation on the 15th of each month. The central bank's announcement shows that the MLF operation window has been adjusted from the middle of the month to the end of the month. People close to the central bank previously told the Securities Times reporter that the MLF operation was arranged after the LPR quotation, which also reflects the central bank's intention to downplay the MLF interest rate policy.

Increase reverse repurchase to protect liquidity

Recently, the upward pressure on money market interest rates has gradually emerged. The weighted average interest rate of 7-day pledged repurchase between banks (DR007) has gradually risen from 1.7048% on August 1 to 1.8799% as of August 14. Li Yishuang, chief fixed income analyst at Cinda Securities, pointed out that from August 12 to 16, due to multiple factors such as tax period, government bond payment and MLF maturity, the fluctuation of the funding surface may further increase.

Wind data showed that the amount of MLF maturing on August 15 was 401 billion yuan. In the face of potential fluctuations in the funding side, the central bank has carried out 200 billion yuan of MLF operations on July 25. Traders from some MLF participating institutions mentioned earlier that they took into account the amount of MLF maturing in August in their demand reporting.

Since August 12, the central bank has increased the volume of reverse repurchase operations in the open market. From August 12 to 15, it conducted reverse repurchase operations of 74.5 billion yuan, 385.7 billion yuan, 369.2 billion yuan and 577.7 billion yuan respectively in the open market using fixed-rate and quantity bidding methods.

Recently, the central bank released the "China Monetary Policy Implementation Report for the Second Quarter of 2024", which pointed out that in the next stage, the financing and total money supply will maintain a reasonable growth. The basic money supply methods will be enriched and improved, and the purchase and sale of government bonds will be gradually increased in the central bank's open market operations.

The color of MLF interest rate policy has obviously faded

The central bank’s announcement clearly stated that the MLF that expires on August 15 will be renewed on August 26. Scheduling the MLF operation after the LPR quotation once again reflects the central bank’s intention to downplay the MLF interest rate policy tone, indicating that changes in the winning bid interest rate do not have policy signal implications.

Pan Gongsheng, governor of the People's Bank of China, pointed out in his recent speech at the Lujiazui Forum that in the future it is possible to consider clearly making a certain short-term operating interest rate of the central bank the main policy interest rate, and said that the interest rates of monetary policy tools of other maturities can dilute the color of the policy interest rate and smooth out the transmission relationship from short to long terms.

Wen Bin, chief economist of China Minsheng Bank, pointed out to reporters that considering that the existing MLF will still expire around the 15th of the month, and there will be other influencing factors such as the tax period in the middle of the month, financial institutions may face new challenges in liquidity management.

However, the central bank has recently prepared a number of measures to optimize the open market operation mechanism, including the 7-day reverse repurchase rate with a fixed interest rate and quantity bidding method to better meet the needs of institutions, the addition of temporary positive and reverse repurchase operations to deal with market emergencies, and the preparation of treasury bond trading operations. Experts generally believe that the central bank will continue to use the above tools in a comprehensive manner to continue to maintain a reasonable level of liquidity and guide market interest rates to operate smoothly around the central bank's policy interest rate.

Source: Securities Times official microblog

Statement: All information content of Databao does not constitute investment advice. The stock market is risky and investment should be cautious.

Editor: He Yu

Proofreading: Ran Yanqing

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