China's Central Bank Keeps Cost Secret in Overnight Reverse Repo Operation

In a move that could temper expectations among some analysts that authorities might provide policy easing with a cheap interest rate, the People's Bank of China (PBOC) conducted an overnight reverse repo worth 80 billion yuan ($12 billion) without disclosing its cost.

The People's Bank of China conducted an overnight reverse repo of 80 billion yuan ($12 billion) without disclosing the interest rate on the short-term credit provided to financial institutions. This operation, which marks the first of liquidity management moves lasting until November 2, took place amid ongoing debates over whether the PBOC would disclose the interest rate on overnight reverse repos. The central bank governor's earlier signal that the short-term instrument would replace its seven-day counterpart had raised expectations that the overnight interest rate would be made public and that the low funding cost would be utilized for an interest rate cut.

Frances Cheung, Head of FX and Rates Strategy at Oversea-Chinese Banking Corp., stated in her evaluation that the bank likely wanted to prevent the overnight interest rate level—expected to remain below the seven-day reverse repo rate—from being overinterpreted by the market. Cheung noted that while the transition is not equivalent to a direct cut, the market could view this development as pointing to the lower floor of the interest rate band. While the PBOC's official seven-day reverse repo rate stands at 1.4 percent, the overnight repo rate in the interbank market hovered around 1.26 percent.