China's Central Bank Reintroduces Repo Operations After Ten Years

The People's Bank of China announced that starting immediately, it will conduct temporary reverse repos or repos depending on market conditions, operating from 16:00 to 16:20 on working days. The term will be overnight, using fixed-rate, quantity bidding. The interest rates for temporary overnight reverse repos and repos will be 20 basis points below and 50 basis points above the seven-day reverse repo rate, respectively.

Minsheng Securities believes that this temporary repo operation is similar to the Fed's overnight reverse repo tool but more proactive, helping to stabilize market fluctuations and establish a new overnight interest rate benchmark. Analysts suggest that this marks significant progress in interest rate marketization and the "short-to-long" regulation strategy of the PBOC. The new tool might pose adjustment risks for short-term bonds.

Some analysts believe that the introduction of temporary repos and reverse repos strengthens the influence of the seven-day OMO rate, making it a real policy rate. The PBOC’s monetary policy is shifting from quantitative to price-based measures, aligning with international practices.