Repo Rates Elevated Even As PBOC Ramps Up Liquidity

The PBOC fixed USD/CNY at 6.4617, the banks liquidity injections matched withdrawals today despite repo rates creeping up. The fix was once again above sell-side estimates, indicating the PBOC asymmetric response function.

• A stronger greenback has helped firm USD/CNH despite the lower fix, the pair last up 43 pips at 6.4692
• Markets await clarification of US President Biden's stance on China, with some cabinet picks said to indicate he will retain a firmer stance.
• China's short-term money rates surged this week; key tenors have risen to levels not seen since the onset of the coronavirus pandemic. The central bank had been steadily withdrawing funds via liquidity operations in 2021, after some bumper injections heading into year end. However as scheduled tax payments and Lunar New Year approach the bank has switched to sizable injections, equating to CNY 598bn this week. These injections failed to suppress repo rates which are now higher for the 12^th consecutive session.
• The overnight repo rate has risen 199bps in 2021 and is actually trading higher than the benchmark 7-day repo rate, a rare occurrence.