SHANGHAI — China’s central bank injected 541 billion yuan ($81.3 billion) into the banking system on Monday through overnight reverse repurchase agreements priced at 1.25%, as it formally shifted its main policy-rate anchor to the overnight lending rate.
The People’s Bank of China had said on Friday that it would begin conducting overnight reverse repos daily and change its seven-day operations from a single fixed rate to multiple rates. Analysts said the new framework effectively lowers the floor of China’s interest-rate system by 15 basis points, reducing borrowing costs for financial institutions.
The move is not a conventional policy-rate cut, but analysts said it could help push yields lower across the bond curve. Ming Ming, chief economist at CITIC Securities, said the 1.25% rate confirmed the existing benchmark for funding costs, while Marco Sun, chief financial market analyst at MUFG China, said the initial pricing indicated a downward direction for short-term interest rates.
The policy change comes as credit concerns surrounding state-owned developer Zhuhai Huafa Group have unsettled China’s bond market and increased pressure on policymakers to support investor confidence. Zhaopeng Xing, senior China strategist at ANZ, described the move as equivalent to a targeted 15-basis-point rate cut for financial institutions.
Xing said the measure could increase financial institutions’ net interest margins by about 5 basis points, helping stabilise sector profitability and improve its ability to absorb risks. He added that the move was unlikely to have a significant effect on the stock market.
Chinese regulators, including the central bank, were also due to meet financial institutions on Monday to discuss measures supporting capital markets, according to media reports. The meetings come amid volatility in stocks and bonds and growing calls for policy assistance.
Some analysts expect broader monetary stimulus to come later. Citi analysts described the transition as a mark-to-market adjustment rather than an effective rate cut and said they did not expect a loan prime rate reduction in November. They identified 2027 as the more likely period for rate cuts, while saying renewed credit concerns related to Zhuhai Huafa supported continued efforts to resolve local debt problems and maintain loose liquidity conditions.
The PBOC said last month that it was considering making the overnight reverse-repurchase rate its main policy rate to improve the transmission of monetary policy and support economic growth.
Sources: Investing.com News.