Institutions such as the Shanghai Pudong Development Bank (SPDB) have indicated that the causes of the current tightness in liquidity are multi-faceted, for example: the recent IPO issuance of China State Construction Engineering Corporation (CSCEC), the depositing of fiscal deposits, the requirement for smaller banks to make up the reserve requirement ratio for security deposits on February 15th, and the expiration of reverse repurchase agreements for some banks, etc. GTJA Securities trader Hu Da pointed out that a large amount of reverse repurchases made before the holidays were recalled after their expiration following the holidays. In addition, the market liquidity has not received direct replenishment recently. Therefore, even after the news of the RRR cut was announced last weekend, the market's capital rates remained high. However, considering the absolute level of the current market's capital rates, it cannot be ruled out that some institutions may be taking advantage of the situation to "hold people to ransom."
China International Capital Corporation (CICC) further noted that despite the re-appearance of net inflows in foreign exchange reserves, fiscal deposits also started to increase seasonally, thus offsetting each other. The previous reverse repurchase agreements and extensions conducted by the central bank could only ease short-term shocks but now face expirations one after another. As a result, the excess reserve funds of commercial banks have not increased. Following the announcement by the central bank last weekend of the reduction in the statutory deposit reserve ratio, which has yet to be officially implemented, the inter-bank market liquidity remains tight. Considering that the 7-day repo rate is still maintained at above 5%, it is expected that the liquidity tension will not significantly ease until next week.
Regarding the future trend of capital rates and open market operations, Hu Da believes that the liquidity may remain relatively tight on Wednesday and Thursday, but after the official implementation of the RRR cut on Friday, the capital rates are expected to drop significantly. The overnight and 7-day repo rates are expected to fall to around 3% and 3.5%, respectively. Meanwhile, judging from the central bank's operational intentions, the open market operations this Thursday may continue to be suspended.