The People's Bank of China, the country's central bank, debuted a 300-billion-yuan (44.15-billion-U.S.-dollar) overnight reverse repo on Monday to better accommodate banks' short-term liquidity demand.
Overnight reverse repo operations means the central bank purchases securities from primary dealers such as large banks the day before, and traders redeem the securities from the central bank again at an agreed price the next day, thus realizing a one-day liquidity regulation. Experts said that overnight reverse repo operations will not only better meet the cross-quarter liquidity demand at the end of the first half of the year, but also play as an important measure to promote transformation of the monetary policy framework.
"At the end of June, the banking system was confronted with a funding gap caused by seasonal assessment. Overnight reverse repos could more effectively deal with temporary liquidity pressure at the end of the month and quarter. The overnight reverse repo can supplement the tool with a term of one day, which is conducive to improving the mechanism for short-end interest rates regulation," said Dong Ximiao, chief economist at the Merchants Union Consumer Finance Co., Ltd.
"It can form a term matching with the existing seven-day reverse repo, meeting different scenarios of the banking system's capital demands and promoting stable and orderly operation of the financial market," he said.
China debuts overnight reverse repo to match short-term liquidity demands
