The central bank's month end reverse repo efforts increased - releasing positive signals to the market

(Related data drawing)

Recently, the People's Bank of China has gradually increased its reverse repo operation, from net withdrawal last week to net release this week. On November 30, the People's Bank of China carried out a 7-day reverse repurchase operation of 170 billion yuan by means of interest rate bidding. On the 29th, the People's Bank of China launched a reverse repurchase operation of 80 billion yuan, realizing a net investment of 78 billion yuan in the open market. With the net investment of 52 billion yuan on the 28th, the net investment of 130 billion yuan has been realized in two days.

Statistics show that from November 21 to November 25, the People's Bank of China's reverse repo single day launch scale was within 10 billion yuan, with a cumulative release of 23 billion yuan, during which the reverse repo expired 401 billion yuan, so the net withdrawal was 378 billion yuan. Industry insiders believe that in the last few weeks, the public market was dominated by net withdrawal, because the central bank increased the amount of public market investment at the end of October, and the Medium Term Loan Facility (MLF) continued to shrink in November. Since the beginning of this week, the People's Bank of China has stepped up its open market operation because the short-term interest rate has limited further downward space near the end of the month before the capital reduction is in place. In order to maintain a reasonable and sufficient liquidity, the People's Bank of China's open market operation has returned to the scale of 10 billion yuan.

On November 25, the central bank announced a comprehensive reduction in the reserve requirement ratio, which will reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on December 5 (excluding financial institutions that have implemented a 5% deposit reserve ratio), releasing a total of about 500 billion yuan of long-term funds. After this reduction, the weighted average deposit reserve ratio of financial institutions is about 7.8%. Industry insiders said that before the release of capital from reserve ratio reduction, this reverse repurchase was a liquidity management aimed at the possible capital fluctuation at the end of the month, intended to stabilize the supply and demand of short-term funds and interest rates, and continue to release positive signals to the market.

Zhou Maohua, a macro researcher in the financial market department of Everbright Bank, believes that the central bank has moderately increased the net investment of short-term funds, mainly because the market interest rate has fluctuated significantly in the near future. In addition, it has moderately increased open market operations near the end of the month, which is conducive to stabilizing the cross month capital and stabilizing market expectations. As usual, the central bank will moderately adjust its open market operation in early December.

"Although the People's Bank of China withdrew reverse repurchase funds last week, the RRR reduction announced on November 25 reflects that the purpose of current monetary policy is to maintain reasonable and sufficient liquidity, promote the steady decline of comprehensive financing costs, implement a package of policy measures to stabilize the economy, and consolidate the upward foundation of economic stability." Mingming, chief economist of CITIC Securities, said that the trend of market interest rates returning to policy interest rates remains unchanged, The capital fabric will remain relatively stable under the control of the central bank.

Looking forward to December, it is clear that there is no liquidity gap in December (MLF and reverse repo maturity are not considered), but considering that fiscal expenditure is often concentrated at the end of the month, and there is pressure on banks to assess at the end of the year, it is not ruled out that some time points may be tightened.

"The domestic capital is expected to be stable in the month. The reason is that the market liquidity has generally remained reasonable and abundant in the near future, and the domestic policy of bailing out and stabilizing the economy has continued to work." Zhou Maohua said that the demand for liquidity has generally increased at the end of the year. However, with the implementation of the RRR reduction, financial funds and structural monetary policy tools continue to exert their power. It is expected that liquidity will remain reasonable and abundant in December. The central bank will smooth short-term capital fluctuations through flexible adjustment of open market operations.

From the past actions of the central bank in the open market operation, since this year, the central bank has shown more flexibility in the scale of reverse repo operations. The 7-day and 14 day reverse repo are used together, releasing strong signals of stability at important time points such as the end of the month and before the festival to smooth market liquidity. On November 25, the central bank also stressed that it should strengthen the implementation of sound monetary policy, focus on supporting the real economy, avoid flooding, take into account internal and external balance, better give play to the dual functions of monetary policy tools in terms of total volume and structure, maintain reasonable and sufficient liquidity, and maintain the basic matching between the money supply and the growth of social financing scale and the growth of homonymous economy, Support financing in key areas and weak links, and promote the effective improvement of quality and reasonable growth of quantity of the economy.

"The central bank's RRR reduction this time is mainly to supplement the liquidity level, stabilize the bond market expectations, hedge the epidemic pressure, and the subsequent aggregate monetary space narrows, mainly short-term interest rate shocks." Mingming believes that the current monetary policy goal is still to stabilize growth and broaden credit, and the RRR reduction works in coordination with a series of recent policies, However, judging from the extent of this RRR reduction and the central bank's concern about inflation and other issues, we should continue to avoid over issuing money in the future. In addition, considering the previous MLF contraction and the limited space for further monetary policy easing, short-term interest rates may continue to adjust in the medium term.

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