China reduces the reverse repo rate by 10 basis points in order to maintain liquidity.
China, Beijing –China’s central bank cut the rate on its 14-day reverse repos by 10 basis points on Monday, the first time since June 2020, in order to keep the financial system steady ahead of the Spring Festival.
The People’s Bank of China (PBOC) pumped 150 billion yuan ($23.7 billion) in reverse repos into the market at a 2.25 percent interest rate, down from 2.35 percent in prior operations.
In accordance with market predictions, the move comes amid the country’s recent attempts to reduce the cost of financing to businesses and encourage economic development.
The PBOC lowered the interest rates on its medium-term lending facility (MLF) loans and seven-day reverse repos by 10 basis points last week.
On January 20, the nation also reduced the one-year loan prime rate (LPR) by 10 basis points and the over-five-year LPR, on which many lenders base their mortgage rates, by 5 basis points to strengthen monetary policy support for the economy.
Analysts believe that because the reduction volumes are the same, the rate adjustment for 14-day reverse repos “follows the stages” of MLF and seven-day reverse repos.
The central bank began the 14-day reverse repo operation after a one-month hiatus, assisting in the stabilisation of liquidity and the reduction of fund volatility in the market throughout the vacation, they noted.
A reverse repo is a procedure in which the central bank buys securities from commercial banks through bidding with the intention of selling them back later.
