PBOC to Conduct RMB500 Billion One-Year MLF Operation on August 25
The People's Bank of China announced it will conduct a RMB500 billion one-year Medium-term Lending Facility (MLF) operation on August 25 via fixed-quantity, rate-bidding, multi-price auction. With RMB600 billion in MLF maturing this month, the operation represents a net withdrawal of RMB100 billion. Combined with open-market reverse repurchase operations, medium-term liquidity injection totals RMB100 billion in August, the second consecutive month of net injection but down RMB700 billion month-on-month. The central bank also scheduled overnight reverse repo operations from August 27 to September 1 with a daily cap of RMB600 billion.
The People's Bank of China (PBOC) announced on August 24 that it will conduct a RMB500 billion Medium-term Lending Facility (MLF) operation with a one-year tenor on August 25, using fixed-quantity, rate-bidding and multi-price auction methods. Given that RMB600 billion in MLF matures in August, the operation represents a net withdrawal of RMB100 billion for the month. Combined with the open-market outright reverse repurchase operations conducted by the central bank in August, the two policy tools together injected RMB100 billion of medium-term liquidity in August, marking the second consecutive month of net injection, with the net injection scale down RMB700 billion from the previous month.
The central bank also announced on the same day that it will conduct overnight reverse repurchase operations from August 27 to September 1, using a fixed-rate, quantity-bidding approach, with daily operation volume capped at RMB600 billion. The overnight reverse repo operations are designed to better match short-term liquidity needs of the banking system, playing a peak-shaving and valley-filling role during special periods such as month-end and quarter-end fund movements. Overnight reverse repo operations were conducted eight times in August, higher than three times in July and twice in June, with operation timing extending from month-end to the entire month.
Affected by factors such as bank assessments, short-term liquidity demand increased at the end of August. Since August 18, the overnight rate DR001 has risen continuously from 1.35% to 1.42% as of August 24. The central bank's consecutive overnight reverse repo operations at this juncture help control DR001 volatility. On August 24, the Shanghai Interbank Offered Rate (Shibor) overnight tenor fell 1.5 basis points to 1.4190%, while the 7-day Shibor rose 0.64 basis points to 1.4320%; the DR007 weighted average rate stood at 1.4339%, and the DR001 weighted average rate at 1.4229%.