PBOC Drains Liquidity; Repo Rates Return To Normal

The PBOC drained CNY 20bn of liquidity from the system via OMOs again today, the second day in a row. The central bank has now removed CNY 40bn of the CNY 100bn injection in the five days up to month-end. The PBOC has maintained the refrain that open market transactions are aimed at keeping the country's liquidity "adequate at a reasonable level." After jumping earlier this week repo rates have declined to normal levels; overnight repo rate down 4.5bps at 1.605%, 7-day repo rate down 14bps to 1.86% after touching 3.60% earlier this week.

• Chinese markets may face more volatile liquidity conditions in the second half as the PBOC reduced the size of injections, more MLFs are expected to reach maturity, and local government bond sales rise after slower-than-expected progress in H1, the Securities Times said citing analyst Ming Ming of Citic Securities.