China cuts reverse repo rate by 10 basis points to maintain liquidity

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BEIJING: China’s central bank on Monday lowered the rate of its 14-day reverse repos by 10 basis points for the first time since June 2020, to maintain stable liquidity in the banking system ahead of the Spring Festival.

The People’s Bank of China (PBOC) injected 150 billion yuan ($23.7 billion) worth of reverse repos into the market at an interest rate of 2.25 per cent, compared with 2.35 per cent in the previous operations.

In line with the market expectations, the move came amid the country’s continuous efforts recently to lower companies’ lending costs and further boost economic growth.

Last week, the PBOC cut the interest rates of its medium-term lending facility (MLF) loans and seven-day reverse repos by 10 basis points.

The country also lowered 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 on January 20, to enhance monetary policy support for the economy.

Analysts said that the rate adjustment for 14-day reverse repos “follows the steps” of MLF and seven-day reverse repos as the reduction volumes are the same.

The central bank resumed the 14-day reverse repo operation after an interval of one month, helping to stabilise liquidity and reduce fund fluctuations in the market during the holiday, they added.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

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