The People's Bank of China raises the upper limit of overnight reverse repurchase operations to 1 trillion yuan per day

China News Service, Beijing, September 23 (Tao Siyue) The Central Bank of China issued an announcement on the 23rd that in order to better match the short-term liquidity needs of the banking system, overnight reverse repurchase operations will be carried out from September 28 to October 8, with the daily operation volume not exceeding 1 trillion yuan (RMB, the same below).

Since the end of June, overnight reverse repurchase operations have gradually become normalized. In this announcement, the daily operation volume limit was raised from 600 billion yuan in the previous three rounds to 1 trillion yuan.

Before and after the National Day holiday, the demand for overnight reverse repurchases increased due to factors such as residents' pre-holiday cash withdrawals, end-of-month bank assessments, and concentrated expiration of open market operations. Wang Qing, chief macro analyst of Oriental Jincheng, believes that the central bank's increase in the daily operating limit can fully meet the short-term funding needs of financial institutions and guide the money market overnight interest rate (DR001) to operate smoothly around the policy interest rate. He predicts that the central bank may further increase the frequency of overnight reverse repurchase operations in the later period, gradually replacing the 7-day reverse repurchase and becoming the core policy tool of the central bank's short-term liquidity adjustment.

Xiong Yuan, chief economist of Guosheng Securities, said that strengthening the regulation of overnight interest rates is not only in line with the transaction structure of the inter-bank market, but also consistent with the evolution direction of the international price-based monetary policy framework. Judging from the operating structure of China's money market, the transaction size and market activity of overnight products are significantly higher than those of 7-day products, so their price changes can better reflect the marginal tightness of short-term liquidity in the banking system.