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PBOC Signals Policy Consistency

CHINA

Over the weekend the PBOC kept the interbank loan benchmarks unchanged for the tenth month, with 1-Y LPR at 3.85% and 5-Y 4.65%, in line with market expectations. The bank said in its quarterly monetary policy report that it would keep its policies "consistent, stable and sustainable".

  • The bank drained a net CNY 40bn of liquidity from the system after conducting a CNY 10bn injection on Saturday, which brings liquidity drain since the return from LNY to CNY 270bn. Markets seem fairly comfortable with the combination of liquidity drain and forward guidance from the PBOC. The overnight repo rate has returned to levels broadly in-line with normal, last at 1.4692%, the 7-day repo rate last at 2.238%.
  • Tighter liquidity conditions are not conducive to equity gains though, mainland China indices are in negative territory despite gains in most other regional bourses.
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