Central Bank Efforts Eased Liquidity Pressure with Pre-Holiday Measures
The central bank’s recent efforts to combat liquidity pressure in the market have been somewhat successful, thanks to increased open market activities and pre-holiday liquidity arrangements. As a result, funding levels have stabilized as the end of the quarter approached. The focus now shifts to the extent of liquidity pressure expected in October, following a tight situation in September.
During the week leading up to the holiday, from September 25th to 28th, the central bank achieved a net investment of 1.157 billion yuan through open market repurchase agreements. Data indicates that 825 billion yuan of reverse repurchase agreements will expire on October 7th.
Looking ahead, Tianfeng Securities predicts that the trend of money after the holiday will continue to face pressure from fluctuations in the RMB exchange rate, resulting in internal and external balance constraints that may impact financing interest rates. However, the central bank has downplayed concerns about idle fund arbitrage, and superimposed institutions have adjusted their behavior accordingly. Therefore, while the financing aspect may still face some constraints, it is expected that it will not further tighten. The agency predicts that R001 may range from 1.5% to 2% in the near future, while DR007 may range from 1.8% to 2.2%.
Essence Securities predicts a potential financing gap of around 290 billion to 430 billion yuan in October. However, the recent reduction in the reserve requirement ratio, along with the ongoing medium term lending facility and large-scale open market reverse repurchases, reflects the central bank’s commitment to actively protect money supply. As the possibility of the Fed raising interest rates becomes increasingly evident in October, the pressure on the RMB exchange rate may ease, allowing money supply to gradually return to normal levels.
CITIC Securities believes that there will still be a certain liquidity gap in October, particularly in terms of government bonds and financing pressure. The agency estimates that the overall net financing of government bonds in October will be around 200 billion yuan, while expenditure is expected to remain higher than revenue due to ongoing economic challenges. However, the balance of fiscal revenue and expenditure in October is expected to be narrower than in previous years, with a value of around 600 billion yuan. Outstanding foreign exchange changes have had a relatively weak effect recently, but the overall impact is still being monitored.
Excluding the factors of medium term lending facility and reverse repurchases, CITIC Securities estimates a liquidity gap of around 700 billion yuan in October. However, the agency expects that disruptions in government debt financing and credit extension will be limited due to the central bank’s neutral to free monetary policy tone, as well as the ongoing impact of fiscal spending. Overall, it is anticipated that overnight and 7-day interest rates will stabilize, with DR007 ranging from 1.8% to 1.9%.
Guotai Junan’s fixed income research team is optimistic about liquidity easing in October. Fiscal spending at the end of September, coupled with increased special bond payments, is expected to open a window of gradual easing. Historically, net fiscal expenditure in September has been significant, reaching 1 trillion yuan, which bodes well for liquidity in October. Although the progress of special bond issuance was only at 91% by the end of September, the requirement for completion by the end of October supports the expectation of increased liquidity from bond allocation.
Looking ahead to the fourth quarter funding situation, Zhongtai Securities’ fixed income team anticipates a gradual easing of factors that have disrupted funding in the past. Recent increases in the bond market’s leverage ratio suggest a weakening of the central bank’s efforts to prevent idle arbitrage. Furthermore, the expectation that the United States will not raise interest rates this year should alleviate pressure on the RMB exchange rate. Finally, credit data from August exceeded expectations, potentially due to credit stimulus effects and seasonal patterns, which suggests ongoing credit improvement.
(Source: The Paper)
As the central bank stepped up its efforts in the open market and arranged pre-holiday liquidity needs in advance, the funding level crossed the end of the quarter stable. After the tight situation in September, the extent of the liquidity pressure in October has become the focus of the market.
During the week before the holiday (September 25-28), the central bank’s open market repos achieved a net investment of 1.157 billion yuan. Data shows that 825 billion yuan of reverse repos will expire on October 7.
Regarding the trend of money after the holiday, Tianfeng Securities believes that until the pressure of RMB exchange rate fluctuations is not significantly alleviated, the influence logic of “external strength and internal weakness → internal and external balance pressure → marginal changes in financing interest rates” may continue. However, the central bank has recently played down the issue of idle fund arbitrage. The behavior of superimposed institutions has converged. It is expected that although the financing aspect will still face internal and external balance constraints, from the point of view of helping extend credit and maintaining the stability of the financial system, the general financing aspect will not tighten further. The agency predicts that R001 may be in the range of 1.5%-2% in the near future, and DR007 (the 7-day repurchase rate of financial institutions of interbank deposits that use interest rate bonds as collateral) may be in the range of 1.8%-2.2%.
Essence Securities predicts that there could be a financing gap of around 290 billion to 430 billion in October, but the reduction in the reserve requirement ratio in September, the excessive renewal of the MLF (medium term lending facility), and the scale ongoing on a large scale and ongoing. investing OMO (reverse repurchase on the open market) 14 Futures reverse repurchases reflect the central bank’s intention to actively protect money. The “reasonable and sufficient” tone has not changed. As the possibility that the Fed will interest rate hikes become increasingly evident in October, the pressure on the RMB exchange rate may tend to ease, and money is expected to gradually return to normal levels.
CITIC Securities believes there will be a certain liquidity gap in October. Among them, in terms of government bonds, financing pressure still exists. Referring to local bond issuance plans issued by some provinces and cities and historical treasury bond issuance patterns, the overall net financing of government bonds in October is estimated to be about 200 billion yuan; in terms of revenue and fiscal expenditure, expenditure is expected to remain higher than revenue. Referring to historical experience, fiscal revenue in October is usually higher than expenditure. Given that there are still some challenges in economic recovery, government departments are also actively promoting “tax cuts and fee reductions”, it is expected that the the balance of fiscal revenue and expenditure in October will be less than in previous years, narrow, reaching 600 billion yuan; in terms of other factors, outstanding foreign exchange changes have increased since the end of last year, but the overall recent effect is still relatively weak.
“Completely excluding the MLF factors and the end of reverse repurchases, we estimate that there will be a liquidity gap of around 700 billion yuan in October. It is expected that in October, disruptions in government debt financing and credit extension will still exist, come to limit the sudden reduction in funding rates Important factors, but the central bank’s neutral to free monetary policy tone has not changed, and the impact of fiscal spending at the end of September will continue into October. It is expected that the overnight and 7-day interest rate centers will return to relatively reasonable and free points, and DR007 may be at 1.8 It varies within the range of % -1.9%.” Ming Ming, chief economist of CITIC Securities, believes.
Guotai Junan’s fixed income research team believes that thanks to the fiscal spending at the end of September and the increase in special bond payments in October, there is a high probability that the gradual easing window will open in October. September is a big month for fiscal expenditure. In previous years, the scale of net fiscal expenditure in September was 1 trillion, which will be good for liquidity until October. At the same time, the progress of special bond issuance is only 91% by the end of September. However, under the requirement that “new special bonds will basically be issued by the end of September, and special bond funds used for building projects will be used by the end of October,” this year’s big There is a probability that the logic of “special bonds issued will basically be completed by the end of June and used by the end of August” in 2022 will be repeated, and the liquidity environment in October will be benefit from the allocation of special bonds.
Looking ahead to the fourth quarter funding situation, Zhongtai Securities’ fixed income team noted that funding disruption factors other than conventional factors can be expected to ease. First, the bond market’s leverage ratio has recently increased in pledged repurchase volume between banks, possibly because the central bank’s efforts to prevent idle arbitrage have weakened. Second, the United States is expected to stop raising interest rates this year, which will slightly ease the pressure on the RMB exchange rate; thirdly, credit data in August was above expectations, which may be due to the effect of credit stimulus and basically in line with seasonal patterns Subsequent credit improvement is still visible.
(Article source: The Paper)
Article source: The Paper
Original title: Forecast for October funds: Facing internal and external balance constraints, but will not tighten further
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