Repo Rates Come Off Highs As PBOC Adds Liquidity

The PBOC injected CNY 10bn today, repo rates have risen, overnight repo rate up 17bps at around 1.95%, while the seven day repo rate is flat at 1.90% after initially opening higher. The PBOC has now injected funds for the fourth day in a row. Futures are higher, 10-year contract up 0.135 at 98.29, a contract high.

• An article from a senior researcher at the MOF said China should raise the amount of new local government bonds and allow hidden debts to be swapped with these bonds in order to reduce liquidity risks.
• Markets continue to digest inflation data from yesterday, CPI was slightly below estimates but PPI beat consensus again. The gains in producer prices were fueled by higher commodity prices and has increased speculation that pressures in consumer prices are on the horizon. Following the release the PBOC released its Q1 monetary report and downplayed the risks from inflation, adding it will keep credit growth reasonable to support growth. The bank said it expected PPI to rise in Q2 and Q3 due to higher commodity prices, but expect this effect to stabilize. They also noted a weak pass through from PPI to CPI.