In order to maintain reasonable and abundant liquidity in the banking system, the people's Bank of China launched the 600 billion yuan medium-term loan facility (MLF) operation (including the continuation of the MLF due on September 15) and the 10 billion yuan reverse repurchase operation on September 15, 2021, the central bank said in an announcement on Wednesday.

Among them, the winning interest rate of 600 billion yuan for medium-term lending convenience is 2.95%, and the winning interest rate of 10 billion yuan reverse repurchase operation is 2.20%, all of which remain flat.

In addition, 600 billion yuan of MLF is due today.

Judging from the recent operation of MLF, the central bank adopted a shrinking sequel in July and August. Meanwhile, the MLF operating rate has remained at 2.95 per cent for the 17th month in a row as of August.

This MLF carries on the same amount of sequel, there are mainly two factors that bring pressure on the liquidity demand: first, the maturity of 600 billion yuan MLF on September 15 will form a "pumping" effect.

Second, the acceleration of special bond issuance will produce liquidity demand, and may also bring some disturbance to the total liquidity. However, from the special bond issuance plan has been disclosed, the net financing volume in September is not large, the impact on the total liquidity is expected to be limited.

Policy interest rates such as MLF and reverse repurchase are the center of China's monetary policy orientation. According to the recent statement that the central bank has repeatedly stressed the implementation of prudent monetary policy, the interest rates of this MLF and reverse repurchase policy remain unchanged.

CITIC previously reported that the estimated liquidity gap under the assumption of capital maturity sequel, government bond issuance and fiscal revenue and expenditure hedging is small, and the market feeling may be different.

If we consider the acceleration of fiscal expenditure to hedge against government bond issuance and the central bank's open market operation to hedge funds due, the liquidity gap will be small in other months except that the liquidity gap in October is more than 500 billion yuan; without making assumptions about the central bank's liquidity investment and only considering the maturity of funds at the beginning of the month, the liquidity gap we estimate for the year will remain at a high level of about 900 billion yuan. However, the central bank input is the most key factor affecting the liquidity gap, the argument of complete hedging and stable circulation of funds is not convincing; there is a lack of rhythm between government bond issuance and fiscal revenue and expenditure.

Taking into account factors such as cash, fiscal deposits, foreign exchange share, reserve demand, and central bank hedging, CITIC judged that the liquidity gap during the year was not very large, but we need to pay attention to the impact of factors such as the poor pace of government bond issuance and fiscal revenue and expenditure, banks' increased defensive liquidity demand, and other factors on the capital side.