Financial institutions' funding demand decreases, and the central bank conducts consecutive "large-scale" operations

Entering April, the 7-day reverse repurchase operations have experienced “ground-level” activity for several days. Among them, the operation scale of 500 million yuan is the lowest since 2015. Additionally, since March, the buyout-style reverse repos have also been repeatedly scaled back. These changes in short-term and medium-term liquidity management tools have sparked market attention to the central bank’s attitude toward liquidity regulation. Industry experts believe this is merely a flexible adjustment by the central bank considering changes in market supply and demand, not a tightening of monetary policy, and current market liquidity remains ample. In early April, funding rates significantly declined. Market data shows that the overnight anonymous rate dropped to as low as 1.2%, hitting a new low for the year, driving the DR001 down in tandem; R007 briefly fell below the policy rate level. Several fund traders told Shanghai Securities News that repo rates and Shibor both experienced substantial declines, leading to further decreases in short-term asset yields represented by interbank certificates of deposit, with the overall funding cost center moving downward. Industry insiders generally believe that recent changes in the central bank’s daily operations are more about flexible adjustments to the liquidity environment and market institution demands, not indicative of a change in monetary policy stance. (Shanghai Securities Journal)