(Yicai) July 27 -- China’s central bank has announced it will inject CNY2.1 trillion (USD310.3 billion) into the market through overnight reverse repurchase operations between the end of this month and the beginning of the next. Analysts believe this move mainly serves as a precise short-term liquidity adjustment, rather than for interest rate management.

The People’s Bank of China will conduct CNY600 billion (USD88.7 billion) overnight reverse repo operations a day between July 29 and 31 under a fixed-rate, quantity tender mechanism, as well as CNY300 billion overnight reverse repo operations on Aug. 3, the central bank said in a statement on July 24.

Compared with the first round of overnight reverse repos conducted on the last two days of June, this time, the PBOC’s liquidity injection will fall on the last three days of July and extend to August 3 to cover the early-month window.

A total of CNY1.02 trillion reverse repos will mature between today and July 31, according to data from Wind Information. Therefore, the PBOC’s early disclosure of the month-end overnight reverse repo scheme can be interpreted as a forward-looking liquidity support.

However, analysts noted that the central bank has only announced operation volumes without specifying the winning bid rates, demonstrating that the move focuses on quantity adjustment instead of rate guidance, as the seven-day reverse repo rate remains the key benchmark policy rate.

The PBOC’s early announcement aims to safeguard liquidity conditions through the month-end transition and enables market participants to anticipate the funding schedule and allocate capital in advance, helping smooth out swings in money market rates around the turn of the month, said Liu Yu, chief economist at Industrial Securities.

Releasing plans in advance signals the PBOC’s intention to leverage overnight reverse repo operations as an expectation-management tool, said Sun Binbin, chief economist at Caitong Securities. Large banks can arrange funding operations ahead of time and moderate volatility in capital lending.

Extending operations by one day on either side of the month and conducting a supplementary injection on the first working day of August ease liquidity pressure stemming from maturing reverse repos, Sun noted. This underscores the central bank’s increasingly targeted and efficient liquidity management, he added.

The expanded scale of daily overnight reverse repo operations proactively offsets temporary and seasonal funding demand, stabilizing market fluctuations and sustaining orderly operations across the financial sector, according to Dong Ximiao, chief economist at China Merchants Bank-China Unicom Consumer Finance.

The CNY300 billion overnight reverse repos scheduled for Aug. 3 are designed to avert heavy disruptions in the money and bond markets triggered by concentrated maturities of seven-day reverse repos falling due that day, said Ming Ming, chief economist at Citic Securities.

Looking ahead, Sun expects the PBOC to maintain a moderately accommodative stance. As it rolled over medium-term lending facility funds, with a net increase of CNY100 billion, and announced overnight reverse repo operations in advance, the rate on overnight interbank collateralized lending will likely narrow to 1.35 percent to 1.40 percent next week.

Editor: Futura Costaglione