The People’s Bank of China conducted a series of reverse repurchase agreements to provide short term funding to commercial lenders on Nov 2. The central bank injected 541 billion yuan into the financial system at a rate of 1.25%, marking the first operational use of the revised overnight rate that replaces its previous benchmarks for open market operations.
The new overnight rate is lower than the 1.40% 7 day benchmark that the PBOC previously used as its primary policy anchor. This adjustment follows a surge of liquidity support in late October, including multiple injections of 1 trillion yuan that contributed to China’s 5 year government bond yields hitting a record low on Oct 27. Analysts suggest the move is intended to bring the policy rate closer to interbank liquidity needs to improve the transmission of monetary policy.