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Futures Steady After Yesterday's Drop

CHINA RATES

The PBOC matched maturities with injections at its OMO operations today, after rolling over CNY 100bn of MLF funds which equates to additional liquidity of CNY 700bn when takin in conjunction with the 50bps RRR cut last week. Still, repo rates are near the top of recent ranges, the overnight repo rate up 21bps at 2.17%, the 7-day repo rate in line with the PBOC's rate at 2.20%. Futures are flat, holding a tight range after dropping recent highs during yesterday's morning session.

  • In the China Securities Journal there was a report citing a bond investment manager posited that the unchanged MLF rate shows the PBOC is not making dovish moves and the recent policy adjustments have been to address liquidity. It is expected the PBOC will use multiple tools to maintain liquidity in the coming months, it is expected there will be large demand for medium and long-term liquidity with CNY 3.75t of MLF maturing before year-end and an increased government issuance programme.
  • A piece in Yicai.com said the PBOC may keep its policy interest rates, including the rate of MLFs, stable in H2 to manage the market's inflation expectations. After cutting banks' required reserve ratios last week, the PBOC renewed the maturing MLFs on Thursday without changing the rate, signaling it is keeping a prudent monetary policy stance and not attempting to loosen, the newspaper said citing analysts. Still, the RRR cuts may lead to 5 bps drop in LPR to be announced by the PBOC on July 20, the newspaper cited analysts as saying.

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