Yesterday the People’s Bank of China declined to conduct a new Medium-term Lending Facility (MLF):

It’ll conduct the MLF on August 26. This is after the setting of Loan Prime Rates (LPRs) due on the 20th. The PBOC did similar last month. Both the series of rate cuts, and their sequence, indicated its policy framework had changed. Yeterday was more confirmation of this.

The PBOC has now shifted to the 7 day repo rate as being the main signal of policy.

Yesterday the Bank lent 577.7 billion yuan ($80.9 billion) through these seven-day reverse bond repurchase agreements at 1.7% in an open market operation.

The Banks said this cash injection was meant to counteract factors including

• maturing medium-term lending facility (MLF) loans
• tax payments
• government bond issuance

Via Reuters follow up on this change:

• “The central bank has informed primary dealers of the arrangement and reminded them to utilise the seven-day reverse repo operation on Thursday to smooth the liquidity gap between MLF maturing day and rollover,”
• “This would be consistent with the policy direction to gradually fade MLF as a guidance to market rates, so is the change of the MLF date to be after loan prime rate (LPR) decision,” said Frances Cheung, head of FX & rates strategy at OCBC Bank.
• “The chance remains for replacement of some or all of MLF liquidity with that released from an reserve requirement ratio (RRR) cut, later this month or in September.”