PBoC Holds 7-Day Repo Rate, Launches Overnight Reverse Repos

The People's Bank of China (PBoC) injected CNY 157.5 billion through seven-day reverse repos on Monday, while keeping the borrowing cost unchanged at a record low of 1.4%, with the rate serving as China's primary policy rate. The decision signaled that the central bank remains committed to an accommodative monetary stance to support the economy. In a new move, the central bank also launched overnight reverse repo operations, offering CNY 300 billion to financial institutions to provide greater flexibility in managing short-term liquidity and smoothing funding conditions in the interbank market. The central bank did not reveal the borrowing cost of its new liquidity tool, though Reuters reported policymakers had set the rate at 1.25%. The introduction of the tool comes as authorities seek to refine their liquidity management framework, ensuring ample cash in the banking system while maintaining stable money market rates.

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.