PBoC signals addition of open-market maturities to aid markets

  • Markets
  • Tuesday, 15 Aug 2017

Markets had been divided over whether the PBoC would raise short-term rates again in lockstep with the Fed, with those in the

BEIJING: China’s central bank, already wielding an increasingly complicated suite of monetary policy tools, signalled that it’s likely to add even more to the mix.

The People’s Bank of China (PBoC) said it will “enrich” the maturities of reverse repurchase agreements to ensure the stability and neutrality of funding in the financial system, according to a quarterly monetary policy implementation report released here on Friday.

The report is mainly a review of monetary policy conducted in the second quarter.

The PBoC said it’s considering new tenors to “avoid misinterpretation” of prudent and neutral monetary policy settings as it adjusts market liquidity to offset external factors such as fiscal revenue, government spending, and market expectations.

Such external influence on liquidity has amplified as financial markets grow, it said, without identifying any specific duration for the agreements.

The central bank is signalling that “it’s going to add new operation tools in the near future,” Ming Ming, head of fixed income research at Citic Securities Co in Beijing and a former PBoC official, wrote in a note Saturday.

With new tenors, funding levels will “tend to be more stable in the second half,” he said, adding that the PBoC is likely to make the less-than-seven-days short-term liquidity operations routine and add operations with a two-month tenor.

The PBoC has been managing interbank liquidity with its suite of monetary policy tools while keeping traditional benchmark interest rates and required reserve ratios on hold since at least February 2016.

It currently has seven-, 14- and 28-day operations on the open market, and three-month to one-year operations to meet mid-term liquidity demand.

The central bank also said in the report it’ll step up coordinated oversight of important institutions and monitor the impact of changes in global markets on liquidity in China.

In addition, it will include interbank certificates of deposit issued by banks with assets over 500 billion yuan (US$75bil) under the macro-prudential assessment framework starting in the first quarter of next year, the latest move toward defusing risks before a key gathering of Communist Party leaders in the fall. — Bloomberg

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