PBoC Continues Zero Reverse Repo Operations

The People's Bank of China said it will conduct overnight reverse repurchase operations on Monday and Tuesday to improve short-term liquidity management in the banking system. The move follows Governor Pan Gongsheng's remarks last week that the central bank would broaden its short-term liquidity toolkit by introducing overnight reverse repos and narrowing the interest-rate corridor for its temporary repo and reverse repo facilities. According to the PBoC, the overnight reverse repos will be carried out through fixed-rate, quantity-based bidding. Pan also said the central bank will optimize its temporary overnight repo and reverse repo operations by narrowing the interest-rate corridor to 50 basis points from 70 basis points, a step aimed at strengthening interest-rate guidance and improving the effectiveness of monetary policy implementation.

The People's Bank of China announced on Wednesday several measures to improve its short-term interest rate framework, signaling a possible shift toward using the overnight policy rate as its main benchmark instead of the current seven-day reverse repo rate. Governor Pan Gongsheng said the central bank will narrow the interest rate corridor for its temporary overnight repo and reverse repo facilities while increasing overnight reverse repo operations. He said further that the central bank is developing tools to provide emergency liquidity to non-bank financial institutions during times of market stress. Chinese authorities also rolled out new measures to promote the yuan's international use, including a repo facility allowing foreign monetary authorities and sovereign wealth funds to access yuan liquidity using bonds as collateral, alongside a pilot program for offshore yuan foreign exchange trading in the Shanghai Free Trade Zone.

The People's Bank of China (PBoC) left its daily liquidity injections unchanged at zero for a second consecutive session on Thursday, following the first suspension of seven-day reverse repo operations in nearly two years a day earlier. The central bank said the zero-volume operation reflected the needs of primary dealers in open market operations. The move has drawn market attention as it comes despite ample liquidity in the banking system. The consecutive zero operations suggest policymakers are comfortable with current funding conditions and see no immediate need to inject additional cash into the financial system.