PBOC nets CNY598.5 billion drain

The People's Bank of China let 598.5 billion yuan of liquidity drain from the banking system on Wednesday by conducting no 7-day reverse repos, according to MNI and Wind Information. The move followed a day earlier operation in which the central bank injected 5 billion yuan through 7-day reverse repos at 1.40% and 359 billion yuan through overnight reverse repos. Chinese financial media described Tuesday’s action as routine liquidity management after month-end funding pressure eased. The latest operation left traders focused on whether Beijing sees current money-market conditions as comfortable enough to absorb a large maturity without replacement. ### Why did a zero-operation day still produce a 598.5 billion yuan drain? Wednesday’s 598.5 billion yuan drain came from maturities rather than an active tightening step. MNI reported that the PBOC conducted zero 7-day reverse repos, and after offsetting 598.5 billion yuan of maturing funds, the net result was a drain of the same size. (mnimarkets.com) Wind data cited by MNI showed the entire effect came through the open-market roll-off. That matters because the PBOC often calibrates daily liquidity by deciding how much of maturing reverse repos to replace, rather than by changing benchmark policy rates. ### What had the PBOC done the day before? (mnimarkets.com) On Sept. 1, the PBOC offered 5 billion yuan of 7-day reverse repos at a fixed rate of 1.40% and 359 billion yuan of overnight reverse repos, according to Securities Daily and Xinhua Finance. Those operations came against 386 billion yuan of maturing 7-day reverse repos and 447 billion yuan of maturing overnight reverse repos, producing a net drain of 469 billion yuan. (mnimarkets.com) The overnight tool was part of a temporary schedule announced on Aug. 25. The State Council Information Office’s English-language briefing said the PBOC would conduct overnight reverse repos from Aug. 27 through Sept. 1 to meet short-term liquidity needs in the banking system, with daily amounts capped at 600 billion yuan. (zqrb.cn) ### What were Chinese analysts saying about the Sept. 1 drain? CITIC Securities chief economist Ming Ming told Securities Daily that the Sept. 1 net withdrawal was routine because funding had already crossed month-end and the effect of cross-month demand had ended. He said overnight rates had fallen back to around 1.36%, making the withdrawal of excess liquidity a standard “peak-shaving and valley-filling” operation. (english.scio.gov.cn) Tianfeng Securities fixed-income chief analyst Tan Yiming told the same outlet that the PBOC’s overnight reverse repo tool had already been used in four rounds since its launch, covering month-end and tax-payment periods from June through August and helping improve funding conditions. ### What did money-market rates do after Wednesday’s operation? (zqrb.cn) DR007, the seven-day weighted average interbank repo rate for deposit-taking institutions, fell to 1.3711% at 09:53 a.m. local time on Wednesday from 1.3841% at the previous close, MNI reported. The lower reading suggested that the large drain did not immediately push up short-term funding costs in early trading. (zqrb.cn) That rate move fits the explanation given a day earlier by Ming Ming, who said month-end pressure had faded and overnight funding had already retreated to low levels. ### What comes next in September’s liquidity calendar? September brings a heavier maturity schedule beyond daily reverse repos. (mnimarkets.com) Securities Daily reported that 5 trillion yuan of three-month outright reverse repos, 5 trillion yuan of six-month outright reverse repos and 600 billion yuan of medium-term lending facility funds are due this month. Ming Ming told Securities Daily that the PBOC was likely to keep using “peak-shaving and valley-filling” operations and to deploy overnight reverse repos again around tax dates and month-end if short-term liquidity gaps emerge. (zqrb.cn)