(Yicai) July 27 -- China’s central bank plans to inject CNY2.1 trillion (USD310.3 billion) into the market through overnight reverse repurchase operations spanning late July and early August. Analysts said the move is intended to calibrate short-term liquidity conditions rather than shape interest rates.

The People’s Bank of China will conduct CNY600 billion (USD88.7 billion) of overnight reverse repo operations each day between July 29 and 31 via fixed-rate, quantity-based tenders, as well as CNY300 billion of the same on Aug. 3, it said in a statement on July 24.

Compared with the first-ever overnight reverse repo operations conducted in the last two days of June, this time, the PBOC’s liquidity injection will span the final three trading days of July and the first trading day of August. CNY1.02 trillion of reverse repo agreements will mature between today and July 31, according to data from Wind Information.

The bank’s decision to announce the operations in advance serves both to support cross-month liquidity conditions and enables market participants to 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.

The fact that the PBOC disclosed the size of the operations but not the reverse repo rate further underscores that the facility is intended primarily as a quantity-management tool rather than an instrument for signalling interest-rate policy, analysts noted.

The early announcment signals the PBOC’s intention to leverage overnight reverse repos as a tool for managaing expectations, 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-end and conducting an additional operation on the first working day of August will help cushion the liquidity impact stemming from maturing reverse repos, Sun noted. This underscores the bank’s increasingly targeted and efficient liquidity management, he added.

The substantially larger scale of the operations is intended to pre-empt temporary and seasonal funding pressures, according to Dong Ximiao, chief economist at China Merchants Bank-China Unicom Consumer Finance. By injecting liquidity ahead of anticipated demand, the PBOC aims to smooth market fluctuations and maintain stable conditions across the financial system, he said.

The CNY300 billion scheduled for Aug. 3 is likely intended to mitigate the liquidity shock in both the money and bond markets associated with a large concentration of maturing seven-day reverse repos, 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