PBOC Favours 7 Day Reverse Repos for Liquidity Management


China’s central bank injected net liquidity of 180 billion yuan (USD$26.13 billion) during the two day period from 16 to 17 May primarily by means of 7-day reverse repos.

The People’s Bank of China release 150 billion yuan in 7-day reverse repos and 40 billion yuan in 14-day reverse repos on 16 May, before releasing a further on 110 billion yuan in 7-day reverse repos and 30 billion yuan in 14-day reverse repos the following day.

PBOC itself has indicated the move marks a shift towards the use of short-term reverse repos as a key liquidity management tool.

“In terms of maturity allocation, in order to improve price model adjustments and transmission mechanisms, and strengthen the independent pricing capability of financial institutions, for a set period in the future the central bank’s reverse repo operations will focus primarily on 7 day maturities,” said the Chinese central bank. “Other maturities will be selected in the case of disruptive provisional or seasonal factors however.”

With respect to medium-term lending facilities PBOC indicated that it would rely mainly on one-year maturities, and when necessary provide support in the form of other maturities to better satisfy the medium-to-long term liquidity needs of financial institutions.