(Yicai) Feb. 13 -- China’s central bank announced it will inject CNY1 trillion (USD144.9 billion) liquidity into the market through reverse repurchase operations. Analysts believe cuts in the reserve requirement ratio are unlikely in the short term.

The large-scale liquidity injection has made a comprehensive RRR cut less urgent and less possible in the short term, especially before the Chinese New Year holiday, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance and deputy director of the Shanghai Institute for Finance and Development.

After injecting liquidity through various monetary policy tools, it is better to observe the effects first and avoid using an aggregate tool like a comprehensive RRR cut, which is in line with China’s current policy thinking, Dong explained.

The People’s Bank of China announced yesterday that it will conduct a CNY1 trillion outright reverse repo operation today with a fixed quantity through interest-rate bidding, with winning bids determined at multiple price levels. The operation will have a tenor of six months.

The fact that the central bank is unlikely to trim the RRR does not mean that the window for a comprehensive RRR cut has closed, as it remains an important option in the central bank’s toolkit, Dong noted.

This month, CNY700 billion (USD101.4 billion) outright reverse repo operations with a tenor of three months and CNY500 billion with a tenor of six months will mature.

The PBOC has already conducted a CNY800 billion three-month outright reverse repo operation on Feb. 4, which, combined with today’s operation, has made net injections of CNY600 billion this month, up CNY300 billion from last month. This marks the ninth consecutive month that the PBOC has injected medium-term liquidity into the market via outright reverse repo operations.

In February, banks tend to grant credit loans intensively, Dong noted. This, coupled with the increased cash withdrawals before the Chinese New Year and other factors, will raise demand for liquidity in the market, he explained.

The PBOC’s large-scale outright reverse repos with amounts larger than matured ones before the holiday have sent a positive signal of maintaining abundant liquidity and safeguarding the stability of the financial market, Dong pointed out.

To ensure the funding needs of major projects in key areas and consolidate the positive momentum of economic recovery, the quota for new local government debts has been allocated ahead of schedule this year, indicating that despite the upcoming Chinese New Year holiday, some government bonds will be issued, said Wang Qing, chief macro analyst with Golden Credit Rating International.

As the CNY500 billion new financial tool was fully deployed last October, it will drive a large-scale release of matching loans in the first quarter of this year, Wang noted, adding that all these factors will bring about a tightening effect on the money supply.

As a result, the central bank’s injection of medium-term liquidity into the banking system through outright reverse repos can guide the money supply to remain relatively stable and abundant before the holiday, demonstrating continuation of supportive monetary policy, he explained.

In addition, CNY300 billion in medium-term lending facility will mature this month, which the central bank may roll over at the same or slightly higher amount, Wang believes.

The PBOC will provide further liquidity support through MLFs and treasury bond trading tools this month, said Ming Ming, chief economist of Citic Securities.

Editor: Futura Costaglione