LPR Fixings Due

The PBoC will conduct its monthly LPR fixing exercise on Wednesday, with the BBG consensus pointing to both the 1- & 5-Year fixings being left unchanged, at 3.85% & 4.65% respectively. The expectations for unchanged fixings are unanimous. Although the Evergrande situation and economic headwinds, most recently attributed to snap regional lockdowns to combat the spread of the delta COVID variant, create a potential need for liquidity, most expect the PBoC to continue to deploy targeted measures, particularly when it comes to supporting the "real economy." This train of thought was supported by recent comments from the head of the PBoC's monetary policy department, as he noted that "under the current circumstances, much liquidity may not be needed to keep the money market interest rate stable…In the next few months, the supply of, and demand for, liquidity will basically remain balanced, and there will be no large gap (of base money)." Month-end & holiday related OMO liquidity may continue to be deployed into the end of September, with expectations surrounding an uptick in local government bond issuance in the coming months also holding the potential for increased fine-tuning from the PBoC as we move forwards.