PBoC Injects 1.2 Trillion Yuan in 7 Days

What is the intention? The market smelled a cut in interest rates.

iFeng: 密集释放流动性：央行7天投放1.2万亿 闻到了降息的味道
Sogou: Intensive Release of Liquidity: Central Bank Releases 1.2 Trillion Dollars in 7 Days, Smelling Interest Rate Cut

On July 23, the central bank launched TMLF and MLF operations totaling 497.7 billion yuan, which is basically the same as the maturity of the medium-term lending facility (MLF) of that day of 502 billion yuan.

Obviously, the equivalent continuation of MLF has become the standard operation of the central bank. However, there are still 300 billion yuan of 7-day reverse repos due in the following 3 trading days of this week, and the pressure on the central bank to open the market has not decreased.

It is worth noting that in addition to this, in the six working days since July 15, the central bank has cumulatively invested 710 billion yuan, with a net investment of 521.5 billion yuan. plus this time, it can be seen that the central bank has "full firepower".

With the central bank releasing liquidity so intensively, there are obvious signs that the price of capital has peaked and dropped. On the 23rd, both DR001 and DR007 saw a decline of about 10 BP. Shibor overnight capital price also dropped by 10.78 BP on the basis of 15.72 BP yesterday.

...With the capital falling back, the market expects the central bank to lower its standard even more strongly. At the symposium of economic situation experts and entrepreneurs convened by the State Council on July 15, the main leaders stressed that "there are still many tools in the policy toolbox" and "we should adhere to the implementation of active fiscal policies, prudent monetary policies and employment priority policies, timely pre-adjustment and fine-tuning, and make good use of counter-cyclical adjustment tools." "Dredge the transmission channel of monetary policy and reduce the financing cost of small and medium-sized micro enterprises."

However, in the past two years or more, the central bank has been taking measures to reduce the interest rate in the market among financial institutions, such as reducing the interest rate or reducing the interest rate in a targeted way. However, with the progress of time, the effect of the central bank's operation has shown marginal decline, and the market's call for interest rate reduction is increasing.

In addition, Yi Gang, governor of the Central Bank, also talked about the main ideas of the interest rate merger reform in an interview with the media. "The deposit and loan interest rates should be separated."Yi Gang said that the deposit benchmark interest rate will remain for a long time to avoid a deposit war. The pricing mechanism of loan interest rate should be further reformed, and the benchmark loan interest rate should fade out.,The benchmark interest rate for loans is replaced by the quoted market interest rate, and a series of market interest rates such as the Medium Term Loan Facility (MLF) are also referred to.

...Fan Xinjiang, a fixed income analyst at Minsheng Securities, believes that in July, the reverse repo previously put in by the central bank gradually expired and returned to the market. The overall reverse repo stock level in the market dropped significantly from above 6.7 trillion yuan at the beginning of the month to below 5 trillion yuan. Among them, the reverse repo stock of state-owned big banks dropped from above 2.1 trillion yuan to the current low of around 10.7 trillion yuan. The reverse repo stock of stock banks dropped from around 1.2 trillion yuan at the high point to around 0.4 trillion yuan. The contraction of the reverse repo stock between state-owned big banks and stock banks is the main reason for the tightening of the overall liquidity in the market.

Signs of Falling Capital Prices Appear

As the central bank releases liquidity so intensively, the price of capital also shows signs of falling back.

In the inter-bank market overnight repo rate market, there are obvious signs of short-term capital price peaking, with both DR001 and DR007 experiencing a decline of about 10 BP on the 23rd.

Obviously, as the monetary policy easing expectations of the Federal Reserve and the European Central Bank continue to ferment and the Federal Reserve is more likely to implement preventive rate cuts at the end of the month,China's monetary policy operation space has been further widened, and monetary policy is easy to loosen but difficult to tighten, which has become a common consensus in the market..