The central bank has conducted ultra-large reverse repurchase operations for two consecutive days, and the moderately easing policy stance remains unchanged.

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Source: China Securities Journal

The public market operations transaction announcement released by the People’s Bank of China on April 2 shows that on that day the central bank carried out a reverse repo operation with a fixed interest rate and quantity bidding format, using CNY 500 million for a 7-day term. At the same time, the announcement added the wording “fully met the needs of primary dealers.” This operation was the second consecutive trading day in which the central bank conducted a reverse repo liquidity injection of CNY 500 million at a record-low amount for the day.

The record-low amount operation reflects that market institutions have reduced their demand for central bank funds. The reporter learned from some financial institutions that as the central bank increased its injections to support cross-quarter liquidity at the end of March, and due to concentrated fiscal spending at quarter-end, liquidity conditions remained loose at the beginning of April. Given considerations for their own liquidity management, most institutions in the past two days did not submit funding demand to the central bank.

Experts said that judging from the addition of the wording “fully met the needs of primary dealers” in the April 2 announcement, the central bank’s record-low amount operations do not imply a tightening of liquidity. The direction of a moderately loose monetary policy has not changed.

Meanwhile, overnight rates in the money market have continued to run at low levels. In the first two months of this year, the central bank injected about CNY 2 trillion in medium- and long-term funds through tools such as outright reverse repos and the Medium-Term Lending Facility (MLF) to create favorable monetary and financial conditions for a strong start to the economy this year. After the Spring Festival holiday, residents gradually deposited cash back into banks, helping market liquidity maintain a loose stance.

The data show that in March, the daily average of the overnight rates in the money market was around 1.31%, continuing to move downward from the lower levels in January and February. In early April, the overnight rate in the money market fell further to below 1.3%, and the demand by financial institutions for borrowing funds declined significantly.

Previously, the central bank had repeatedly told the market that there was no need to pay too much attention to the transaction volume of the central bank’s tools. Experts said that on April 1, the central bank’s open market 7-day reverse repo operation was also only CNY 500 million, with a net repo withdrawal of CNY 78 billion, but this did not affect the fact that liquidity conditions remained loose. In fact, bank-system liquidity is affected by changes such as fiscal deposit payments to the Treasury and cash circulating in the public. The central bank maintains ample liquidity and needs to flexibly carry out various operations to offset the above factors.

“Assessing liquidity conditions should not just focus on the change in one factor, but should comprehensively combine how various factors affect the picture in terms of their quantitative impact. From this perspective, compared with changes in quantity, changes in price—i.e., the level of short-end interest rates—are more appropriate.” The above expert said.

At the press conference of the State Council Information Office in January of this year, Zou Lan, vice governor of the People’s Bank of China, said that by flexibly combining different tools in open market operations, the central bank should maintain ample liquidity and guide overnight rates to run around the level of policy interest rates. The above expert said that the recent record-low amount operations in the open market are precisely a manifestation of the central bank operating more flexibly and more precisely, and they are also an inherent requirement for the monetary policy shift toward price-based control.

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责任编辑：朱赫楠