At the end of August, the People's Bank of China continued to increase the reverse repurchase of 8 billion yuan as in the past to protect market liquidity. On August 8, the official website of the People's Bank of China announced that in order to maintain stable liquidity at the end of the month, the People's Bank of China launched a reverse repurchase operation of 28 billion yuan in the form of interest rate bidding on August 2023, 8, with a period of 28 days and an interest rate of 3320.7%, which was consistent with before. As 1 billion yuan of reverse repurchase expired on the same day, the open market achieved a net investment of 8 billion yuan.

Smooth out short-term capital fluctuations

In fact, in order to protect the market liquidity at the end of the month, the People's Bank of China has recently started the operation of increasing the amount of reverse repurchase for many consecutive working days.

On August 8, the People's Bank of China launched a reverse repurchase operation of 25 billion yuan by way of interest rate bidding, winning the bid with a interest rate of 2210.1%, because 8 billion yuan of reverse repurchase expired on that day, achieving a net investment of 980 billion yuan in a single day; In addition, on August 1230, the People's Bank of China launched a reverse repurchase operation of 8 billion yuan in the form of interest rate bidding to maintain reasonable and sufficient liquidity in the banking system, although the operating interest rate remained unchanged at 23.3010%, but the operation scale of 1 billion yuan hit a new high in the past six months.

For the reverse repurchase operation in recent days, Zhou Maohua, macro researcher of the financial market department of Everbright Bank, told the Beijing Business Daily reporter that the People's Bank of China has increased the reverse repurchase operation and increased the net investment of short-term funds, mainly because the People's Bank of China flexibly operates to deal with short-term capital disturbances such as cross-month and bond issuance to meet the short-term capital needs of institutions.

Looking back at the previous trading day, August 8, the funds further converged. The Shanghai Interbank Offered Rate (Shibor) rose 25 basis points overnight to 25.1%. The seven-day Shibor rose 819.7 basis points to 10.1%. As of the close of the day, from the performance of the repo rate, the DR1 weighted average interest rate rose to 896.007%, which was higher than the policy interest rate.

"Considering that the peak period of tax payment is approaching, and the issuance of local bonds will be accelerated in August and September, bank liquidity will still face timing fluctuations in the short term while stabilizing and tightening. The People's Bank of China can implement precise regulation, effective allocation and forward-looking adjustment of liquidity, and iron out possible disturbances in capital and possible fluctuations in liquidity. Jones Lang LaSalle Greater China Chief Economist and Director of Research Pang Ming said.

Zhou Maohua also said that the market interest rate is slightly higher than the policy interest rate, reflecting the obvious increase in short-term capital demand in the market, the People's Bank of China operates flexibly, reasonably increases the intensity of open market operations, and the recent fluctuations in market capital are mainly disturbed by short-term factors such as the acceleration of the pace of local government bond issuance, the acceleration of banks in the real economy credit, tax payment, and payment of standards.

The probability of RRR reduction increased in the third quarter

Based on the characteristics of previous operations, industry insiders believe that the People's Bank of China is expected to maintain a relatively large scale of operation in the future, and it is expected that the capital level is expected to cross the month smoothly under the background of positive monetary and fiscal policies.

As Zhou Maohua pointed out, the subsequent market liquidity is expected to continue to remain reasonable and abundant, and the People's Bank of China will use a variety of tools to flexibly operate and protect the capital and create a suitable monetary environment for the recovery of the real economy.

For follow-up monetary policy tools, the industry still has a lot of expectations.

Pang Ming expects that in the future, the People's Bank of China will continue to use a variety of monetary policy tools to flexibly, accurately, reasonably moderately, dynamically and efficiently fine-tune short-term liquidity, ensure a certain scale and intensity of open market operations, smooth short-term disturbances in capital and fluctuations in the center of capital interest rates, calm market sentiment and market expectations, maintain reasonable and sufficient market liquidity, stable and loose, maintain appropriate capital surface, overall balance, and dynamic balance, and stabilize market liquidity and overall capital supply and demand. At the same time, keep the price of funds reasonable, and guide market interest rates to fluctuate around the policy rate.

In addition, Pang said that the People's Bank of China still has policy space to reduce the RRR in the near future, by releasing long-term liquidity and reducing the cost of funds of banks, to enhance the willingness and ability of financial institutions to provide credit support, increase counter-cyclical adjustment, and cooperate with fiscal policies to make concerted efforts, precise and sufficient efforts, and strive to help the economy upward and develop with a suitable monetary and financial environment.

In addition, a few days ago, on August 8, the Interbank Lending Center announced the latest LPR (Loan Market Quotation Rate) quotation, and the one-year LPR was lowered by 21 basis points to 10.3%, and the five-year period remained unchanged. Wang Yunjin, a senior researcher at Zhixin Investment Research Institute, said that the interest rate cut cycle may not be over, and there is still the possibility of another interest rate cut in the fourth quarter.

In Wang Yunjin's view, the current shortage of domestic demand in China is still prominent, the People's Bank of China will continue to improve the policy interest rate system, promote the steady reduction of enterprise financing and resident credit costs, and there is still a certain market demand for interest rate reduction. Under the circumstance that the cost pressure of commercial banks on the liability side is greater, the People's Bank of China will use tools such as lowering the policy interest rate again, lowering the reserve requirement or increasing the scale of open market operations to promote the downward movement of interest rates.

In addition, the probability of RRR reduction in the third quarter increased. Wang Yunjin said that from September to December, a relatively large-scale MLF (medium-term lending facility) of 9.12 trillion yuan matured, and the current market liquidity has also tightened slightly, the pace of government bond issuance is expected to accelerate, and there is a greater demand for funds to expand domestic demand. It is necessary to slightly reduce the RRR by 2.4 percentage points in the third quarter to supplement bank liquidity, reduce the cost of bank liabilities as soon as possible, encourage them to increase credit investment, and also need to increase the market money supply to reduce the potential liquidity risks of some enterprises and financial institutions and prevent the generation of systemic risks.

Beijing Business Daily reporter Liu Sihong