PBoC To Hike Interest Rates?

Spoiler: CITIC doesn't think the recent spike in interbank pledged repo rates is a sign of an impending central bank rate hike, only a sign of tight liquidity.

Primer on the interbank repo market: China's repo markets (PDF)

iFeng: 央行要加息了?银行间质押式回购利率超过逆回购利率 (The central bank to raise interest rates? Interbank pledged repo rate exceeds reverse repo rate)
Source: clear sketches and notes; Author: CITIC Securities research team obviously

Investment Tips:

There have been some voices in the near-term market that the opening interest rates of interbank pledged repo rates (such as DR007) in excesses in recent months have exceeded the central bank's open market operating rates over the same period, perhaps to some extent, Interest rate (money market interest rate). But we believe that the recent opening of the DR007 interest rate jump is due to the tension of the funds, strict supervision and the end of the month and the beginning of the habit of rising. OMO as a central bank's policy tool, one of its operational objectives is to guide the inter-bank pledged repo rate, the central bank itself is not directly regulate the DR007 opening. If the inter-bank pledged repo rate is ahead of OMO, the OMO's role as a tool disappears. For the DR rate itself, the CBRC recently a number of documents provided by the bank self-examination and supervision and inspection report submitted to focus on the time from June to July, before the bank to adjust its own configuration structure, the funds interest rate is likely to be disturbed.

The recent effect of the beginning of the month at the end of the month to enlarge the interest rate fluctuations. With the specific point in time, is expected to face a certain degree of funding to calm down. For the bond market, fundamentals are still short-term differences, monetary policy will remain stable and neutral, the current regulatory trend is still the main contradiction affecting the bond market. Although the current market sentiment tend to tense, the central bank recently showed a "shortening" characteristics to stabilize the funds side. We still adhere to the 10-year bond yields range of 3.2-3.6% view.

...Looking back over the past year the central bank raised interest rates for open market operations, one on February 3 this year, the central bank open market operation 7 days pledged repo rate from 2.25% up 10BP to 2.35%; the other is in this year's March 16, the central bank again raised 7 days pledged repo rate 10BP to 2.45%. And DR007 are respectively in the up after the last trading day raised the opening interest rate and OMO interest rate the same. In other words, OMO as a policy tool, is the central bank for the market interest rate guidance; and DR as the operating target, is lagging behind the central bank for the open market operations bid rate adjustment.

At the same time from the historical data can be seen, DR007 opening interest rates often in the beginning and end of the month there will be jumping, more than the same period the central bank 7 days reverse purchase bid rate. As banks are often faced with greater liquidity pressure at the end of the month, interest rates will naturally rise.

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