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PBOC Keen To Reassure

CHINA

The PBOC fixed USD/CNY at 6.4524 , 32 pips below sell side estimates and only the ninth lower miss of 2021 so far. A piece in CSJ stated that the PBOC will seek to maintain neutral liquidity and that policy remains neutral, signs of the PBOC pushing back against assumptions of policy tightening.

  • The bank drained a net CNY 80bn of liquidity via its OMOs, injecting CNY 20bn via 7-day reverse repos. After spiking following a CNY 260bn liquidity withdrawal on the first day back from the LNY break yesterday, the overnight repo rate has dropped and is now at 1.85% - broadly inline with levels pre-break.
  • Following the reaction to the drain yesterday, there was a piece in PBOC overseen China Today that cautioned not to read too much into the PBOC's liquidity withdrawal, the piece noted it is not a policy signal but a function of reduced cash needs over an unconventional LNY. The message is similar to the quarterly monetary policy report released earlier in February which helped soothe jittery markets.
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