China Pumps Record Cash Since 2020 via Reverse Repos

The People’s Bank of China will shift its short-term monetary policy framework toward the overnight rate from Monday, introducing daily overnight reverse repo operations at a fixed rate of 1.25%. The move brings the overnight rate closer to becoming its primary policy anchor, replacing the long-standing seven-day benchmark. The operations will adopt fixed-rate, quantity-based tenders to improve short-term interest rate management. The newly disclosed 1.25% rate is below the existing 1.4% seven-day reverse repo rate and broadly in line with market expectations and actual borrowing costs. Under the revised framework, other liquidity tools, including temporary repo and reverse repo operations, will also be priced off the overnight rate, with existing spreads maintained. Seven-day operations will continue through fixed-quantity tenders with multiple winning bid rates, primarily to address liquidity needs around tax payment periods and month-ends.

The People’s Bank of China (PBoC) said it will conduct overnight reverse repo operations from August 27 to Sept. 1 to meet short-term liquidity needs. The operations will be carried out at a fixed rate via quantity-based bidding, with a daily cap of CNY 600 billion. In addition, the central bank announced a CNY 500 billion one-year medium-term lending facility (MLF) on Tuesday, August 25, conducted through variable-rate tenders with a fixed quantity using a multiple-price auction.

The People’s Bank of China (PBoC) said Thursday, August 13, it conducted zero seven-day reverse repos for a third straight day, citing demand from primary dealers. Separately, the central bank announced it will carry out up to CNY 600 billion of overnight reverse repos per day on August 14 and August 17–19. The PBoC uses these short-term liquidity tools to “fine-tune cash conditions” in the banking system, balancing market demand with stability in funding.