MNI BRIEF: PBOC To Introduce An Overnight Repo Tool:Pan

The People’s Bank of China will introduce an overnight reverse repo tool and mull over a liquidity support facility for non-bank financial institutions under specific scenarios, said Governor Pan Gongsheng on Wednesday at the Lujiaziu Forum in Shanghai.

The Bank will improve the short-end interest rate mechanism through increasing an overnight reverse repo instrument in order to better match the short-term liquidity needs of lenders and enhance the precision and effectiveness of short-end interest rate regulation, he noted.

In addition, the interest rate of the current temporary overnight repo and reverse repo facilities will be adjusted to the 7-day reverse repo operation rate plus or minus 25 basis points, narrowing the corridor from 70bp to 50bp. (See MNI PBOC WATCH: Softer Economy To Push H2 Policy Easing)

The PBOC will also consider introducing a liquidity support facility for non-bank financial institutions under specific scenarios. When systemic stress emerges in markets such as the bond market and normal liquidity channels become impaired, emergency liquidity would be provided to non-bank financial institutions through swap arrangements to prevent liquidity shortages from developing into systemic risks, he said.