PBOC Supplies 30 Billion Yuan Liquidity via Reverse Repo

Actual Supply Including 10 Billion Yuan of Maturing Reverse Repo Reaches 20 Billion Yuan
Cautious Moves Detected Such as Market Liquidity Withdrawal Through Short-Term Deposit Rate Hikes

[Asia Economy Beijing=Special Correspondent Jo Young-shin] The People's Bank of China, the central bank of China, conducted open market operations through reverse repurchase agreements (reverse repos) on the 24th, injecting liquidity worth 30 billion yuan (approximately 5.3 trillion KRW) into the market with a 7-day term. The interest rate is 2.2%.

This transaction is interpreted as a measure to secure liquidity in the banking sector at the end of June. Considering that the reverse repos maturing on the day amounted to 10 billion yuan, the net liquidity supply is estimated to be 20 billion yuan.

[Image source=Yonhap News]

This transaction is not read as an intention to withdraw liquidity. Chinese financial authorities have continuously sent signals to the market since the beginning of the year that there will be no tightening.

However, some liquidity withdrawal movements are also being detected. After the People's Bank of China revised the method for calculating deposit interest rates, Chinese commercial banks raised the interest rates on short-term deposit products under one year on the 23rd. On the other hand, the interest rates on medium- to long-term deposit products over one year were lowered.

Accordingly, for 6-month short-term deposits, the interest rate rose from the previous annual 1.95% to 2.05%, and for 3-month deposits, it increased from 1.65% to 1.85% annually.

In contrast, the interest rate on 3-year deposit products fell from the previous annual 4.123% to 3.50%. This is interpreted as a way to withdraw short-term funds without causing shock to the market.