- In July, the People's Bank of China purchased 50 billion yuan of government bonds in the open market, significantly expanding from the 10 billion yuan purchased in June. This indicates that the central bank is continuously using secondary market bond purchase tools to smooth out funding fluctuations and guide the medium to long-term yield curve.
- Structural tools have become the main force for liquidity supplementation, with a net injection of 174.4 billion yuan through other structural monetary policy tools in July, effectively filling the funding gap caused by the maturity of policy development tools.
- Traditional liquidity supplementation channels remained silent, and supplementary mortgage loans contracted, with both the standing lending facility and supplementary mortgage loan injections at zero in July. The supplementary mortgage loans saw a net withdrawal of 116.1 billion yuan.
Expansion of Government Bond Purchases Smooths Yield Curve
In July, the central bank net purchased 50 billion yuan of government bonds through open market operations, significantly expanding from June. This move indicates that monetary policy authorities are gradually normalizing the use of government bond trading tools, maintaining reasonable and sufficient interbank market liquidity while actively guiding long-term government bond yield trends. This funding injection model helps stabilize market expectations for future interest rate policies, prevents long-term yields from falling too quickly, and keeps the financing costs of the real economy stable with a slight decline.
Structural Policy Tools Assume Main Re-lending Functions
In terms of structural monetary policy, the central bank achieved a net injection of 174.4 billion yuan in July, becoming the main liquidity supplementation channel for the month. This operation reflects the targeted approach of monetary policy, guiding financial institutions to focus funds on specific areas such as technological innovation, green development, and small and micro enterprises. The continuous injection of structural tools maintains the optimization of the credit structure without causing excessive liquidity flooding, providing long-term low-cost funding support for specific industries.
Contraction of Supplementary Mortgage Loans and Silence of Traditional Tools
In July, both the standing lending facility and supplementary mortgage loans did not see new injections, with supplementary mortgage loans experiencing a net withdrawal of 116.1 billion yuan. This reflects that the peak period of funding for the three major projects and infrastructure projects has passed, and the central bank is orderly recovering the quotas of existing policy development tools. Through adjustments in the balance sheet structure, the central bank achieved a natural replacement of existing funds, avoiding excessive liquidity sedimentation and idle funds.
Stable Market Funding and Marginal Policy Orientation
Considering various open market tools, the central bank adopted a combination of tightening and easing operations in July, maintaining an overall neutral to slightly loose liquidity stance. Despite the significant net withdrawal of supplementary mortgage loans, the net injection of government bond trading and structural tools effectively absorbed the pressure of fund withdrawal, keeping short-term interest rates in the money market stable. The risk appetite in the bond and equity markets remained neutral, with overall stable fund flows, and the market continues to observe the evolution of subsequent policies.
