PBoC cuts reverse repo rate

SHANGHAI: China’s central bank lowered the interest rate on 14-day reverse repurchase agreements yesterday, in step with a similar cut in the sevenday repo rate last month, to ease monetary conditions.

Traders said the move was expected as it keeps the shape of the yield curve steady while some economists noted this could flag more easing ahead.

The People’s Bank of China (PBoC) said on its website that it was lowering the 14-day reverse repo rate to 2.65% from 2.70%, while keeping the sevenday rate unchanged at 2.50%.

The PBoC unexpectedly trimmed the seven-day lending rate by the same margin in November for the first time in more than four years, a signal to markets that policymakers are ready to act to prop up slowing growth.

“The PBoC will continue to pay close attention to liquidity conditions and flexibly conduct open market operations to keep the year-end liquidity steady,” it said in a statement on its website, but did not provide further explanation on its rate decision.

Some market participants said the amount of fresh funds the central bank offered was beyond market expectations given ample liquidity.

Reverse repos and medium-term lending facilities (MLFs) are widely considered to be the PBoC’s main tools in flexibly managing short-term and longer-term liquidity in the banking system.

The MLF now acts as a guide for China’s new lending benchmark, the Loan Prime Rate (LPR), which is scheduled for a monthly fixing on Friday.

Markets mostly expect the LPR to remain unchanged this month.