Sudden increase in reverse repurchase operations

According to the announcement of the central bank, on the 24th, the People’s Bank of China launched a 30 billion yuan reverse repurchase operation by way of interest rate bidding. The period was 7 days and the winning interest rate was 2.2%. There was no change, but the operation volume increased from 10 billion yuan the previous day to 30 billion yuan. yuan.

Sudden increase in reverse repurchase operations

This is the first time the operation volume has changed since the central bank conducted 80 consecutive reverse repurchase operations of 10 billion yuan since March 1 this year.

Source: Wind

In this regard, the central bank also directly gave an explanation-at the beginning of the trading announcement on the 24th, the central bank pointed out that “in order to maintain stable liquidity at the end of the six months.”

Entering the second half of June, the market’s attention to the liquidity situation at the end of the half year has increased.

Industry insiders believe that the central bank’s move implies that near the end of the six months, market liquidity supply and demand will tighten, and the central bank’s liquidity investment scale will be adjusted in due course.

Judging from the past situation, almost every June, the central bank will increase the investment of short- and medium-term liquidity through reverse repurchase operations and other means.

“Maintaining reasonable and abundant liquidity is not empty talk”

The Financial Committee of the State Council recently held its 51st meeting to study and deploy key tasks in the financial sector in the next phase. The meeting requested that the financial system must adhere to a sense of the overall situation, adhere to a stable character, scientifically and accurately implement macro-control, grasp the degree, and refrain from making sharp turns. It is necessary to comprehensively use a variety of monetary policy tools to maintain reasonable and sufficient liquidity, effectively prevent and defuse financial risks, and promote a virtuous economic and financial cycle.

The central bank recently reiterated that it will improve the modern monetary policy framework, improve the money supply control mechanism, manage the currency gate, maintain a reasonable and sufficient liquidity, keep the money supply and the growth rate of social financing scale basically matched with the nominal economic growth rate, and maintain the macro leverage ratio. Basically stable.

It is worth mentioning that the central bank’s leading media “Financial Times” recently published a commentary stating that under the policy orientation of “stable and stable” monetary policy, it is not empty talk for the central bank to maintain reasonable and abundant liquidity. Market entities do not need to have unnecessary worries about liquidity, and it is not advisable to use unfounded guesses to predict liquidity “tightening” and “volatility” and the central bank’s policy orientation to mislead market expectations and artificially create volatility.

Central bank liquidity operations: the focus is not on quantity

Regarding the central bank’s liquidity operations, the central bank has recently issued multiple signals to emphasize that the focus of observing open market operations is price rather than quantity.

According to the Monetary Policy Implementation Report for the first quarter of this year, the People’s Bank of China has gradually formed the practice of conducting mid-term lending facilitation (MLF) operations at a fixed time in the middle of each month and continuous open market operations on a daily basis, through continuous release of central bank policy interest rate signals , Guiding market interest rates to fluctuate around policy interest rates, significantly improving the efficiency of monetary policy transmission. Therefore, when observing the central bank’s open market operations, the market should focus on the open market operating interest rate, medium-term lending convenience interest rate and other policy interest rates, as well as the operation of market benchmark interest rates over a period of time. The monetary policy orientation has been over-interpreted.

Sun Guofeng, Director of the Monetary Policy Department of the Central Bank, has repeatedly emphasized that determining the trend of short-term interest rates first depends on whether the policy interest rate changes, mainly the central bank’s open market 7-day reverse repurchase operation interest rate, and whether the medium-term lending facility interest rate changes, and should not Excessive attention to the number of open market operations and the liquidity of the banking system.

He said that the number of open market operations will be flexibly adjusted according to various temporary factors such as finance, cash, and market demand, and its changes do not fully reflect the trend of market interest rates, nor do they represent the trend of changes in central bank policy interest rates. Secondly, when observing market interest rates, focus on the weighted average interest rate level of DR007 and its average value over a period of time, rather than the transaction interest rate of individual institutions, or the interest rate at the time that is disturbed by short-term factors.

Judging from the trend of money market interest rates, the recent fluctuations have increased slightly, but they are still operating within a range, and the upward movement of the operating center is not obvious. Especially for DR007, the weekly average is basically around 2.2%, which is close to the central bank’s 7-day reverse repo rate.

Market participants pointed out that due to the tax period and other factors, since the 18th, market funds have slightly tightened, and money market interest rates have risen slightly. The fluctuations in overnight repo rates, which are more sensitive to short-term liquidity fluctuations, have increased, but they are more representative. DR007 remained stable overall.

On the morning of the 24th, as the peak of the tax period passed, the funds had already been loosened. As of 11:30, DR001 plunged 35BP and returned to around 1.8%; DR007 fell 2.5BP to 2.24%.

Many market participants believe that as the central bank increases liquidity in a timely manner, there is basically no suspense about the balance of funds through the end of the year.