PBOC Conducts 14-Day Reverse Repo After 8-Month Hiatus to Nurture Holiday Liquidity

The People's Bank of China (PBOC) announced on September 22 that it had conducted 7-day reverse repurchase operations worth 240.5 billion yuan using a fixed interest rate and quantity tender method, and 14-day reverse repo operations worth 300 billion yuan using a fixed quantity, interest rate tender, and multiple-price award method. This marks the central bank's first 14-day reverse repo operation in eight months and its first such operation after adjusting its operational model.

Industry experts stated that the PBOC's announcement to initiate 14-day reverse repo operations for early cross-holiday fund injection demonstrates an appropriately accommodative monetary policy stance. In recent years, the PBOC has typically initiated 14-day reverse repo operations before the National Day "Golden Week" and Spring Festival holidays, flexibly adjusting the timing based on holiday schedules and institutional demand to provide institutions with cross-holiday funds in advance and maintain ample liquidity.

"The launch timing of this 14-day reverse repo operation is slightly earlier than in previous years. Coupled with the net 300 billion yuan injection already made by the central bank via outright reverse repos previously, it will help further alleviate institutions' precautionary funding demand ahead of the quarter-end and long holiday, ensuring stable cross-quarter and cross-holiday liquidity conditions," said an industry expert.

Wang Qing, Chief Macro Analyst at Oriental Gold Rating, told reporters that considering 280 billion yuan in reverse repos matured on September 22, the PBOC's net injection via reverse repos for the day stood at 260.5 billion yuan. As the National Day holiday approaches, public demand for cash withdrawals increases. These operations help curb the potential upward trend in funding rates. It is expected that the PBOC will continue to conduct 14-day reverse repo operations before the month-end, persistently injecting short-term liquidity into the market. Meanwhile, after the holiday, it will utilize the maturity of these funds to implement net withdrawals, smoothing out peaks and troughs to guide short-end liquidity to remain stable and ample.

Furthermore, this 14-day reverse repo operation employed an American-style tender. The PBOC announced on September 19 that, effective immediately, the open market 14-day reverse repo operations would be adjusted to a fixed quantity, interest rate tender, and multiple-price award method. The timing and scale of operations will be determined based on liquidity management needs. The central bank stated that this move aims to keep banking system liquidity ample and better meet the differentiated funding needs of various participating institutions.

This change will further strengthen the policy status of the 7-day reverse repo operation rate. Industry experts noted that the 14-day reverse repo rate has long been formed by adding 15 basis points to the 7-day reverse repo rate and was previously considered by market participants to carry certain policy attributes.