VIEW: Nomura: CNY600bn In MLF Means A "Staying Put" Policy

Nomura note that "the PBoC offered CNY600bn in MLF this morning. With CNY 200bn of MLF maturing in two days, the net injection for September would be CNY400bn which, in the context of the amount of liquidity injected, is equivalent to a 25bp RRR cut. We see two main implications: First, the PBoC clearly is quite concerned about the rise of bond yields and other medium- to long-term rates. With a total of net financing need of around CNY2.4tn in two months, government bond yields would likely rise further if the PBoC does not accommodate this by adding more liquidity, especially longer-term liquidity. On a side note, adding more short-term liquidity via 7-day or 14-day open market operations (OMO) is not desirable, as DR007 (interbank repo rate between banks only) has been consistently below 2.2% over the past week. Second, the potential for RRR cuts declines significantly in coming months with the large injection via MLF (we do not expect any RRR cuts before end-2020). The PBoC clearly wants to use a lower profile tool to add liquidity, and it also wants to put a lid on bank loan growth (RRR cuts will increase loanable funds)."