The central bank will take action: 1 trillion yuan!

Since the central bank launched the buyout reverse repurchase in October last year, the dependence of monetary policy operations on medium-term lending facilities (MLF) has gradually decreased. In March this year, the MLF changed to a fixed quantity, interest rate bidding, and multiple price winning bidding methods, and the policy attributes were completely withdrawn. Since March, MLF operations have maintained net injections per month, while buyout reverse repurchase operations have seen net recovery for the first time in April.

"MLF may return to the main channel of medium-term liquidity release to alleviate the net interest margin of banks."Sun Binbin, chief economist and director of research institute business, Caitong Securities pointed out that in the context of maintaining abundant liquidity and continuing pressure on the bank's net interest margin, the MLF term is relatively long, and the time for placement and arrival can provide stable expectations for financial institutions. Moreover, winning bids at multiple prices will help reduce capital costs and better meet the differentiated funding needs of different participating institutions. In the future, the central bank may increase its use of MLF, which is beneficial to the bank's capital side.

At present, the central bank has a rich channel for base currency issuance, and MLF, buyout reverse repurchase operations and various structural tools can all invest in medium-term liquidity. Although the central bank has maintained a net withdrawal of buyout reverse repurchases for two consecutive months, overall, the central bank has always maintained a net injection of medium-term liquidity, showing the central bank's moderately loose monetary policy orientation.

Source: Securities Times

Reprinted from: China Economic Weekly