Analysts at TD Securities note the People's Bank of China (PBoC) today injected a net CNY 200bn into the financial system via reverse repos, while lowering the rate on 14-day reverse repos by 5bps to 2.65%.

• "This took place in advance of a likely liquidity drain in January ahead of Lunar New Year holidays, in order to prevent a sharp tightening in interest rates, and to prevent a sharp move higher in bond yields.
• Banks' purchases of local government bonds, which are largely front loaded in Q1, will also result in tighter liquidity. As such, PBoC is likely to step up measures to infuse liquidity while remaining consistent with incremental easing. We expect a cut in the 1y loan prime rate by 5bps on Friday as another step along this path while a cut in the RRR may follow soon."