PBOC 28-day reverse repos join OMO mix

The People's Bank of China (PBOC) pumped 55 billion yuan ($8.69 billion) into the interbank market with a mix of seven-day and 28-day reverse repurchase agreements through its normal open market operations (OMOs) Thursday, according to an announcement from the PBOC, marking the first time since 2002 that the PBOC has issued 28-day reverse repos, a move which experts say is aimed at ensuring the market has ample liquidity to last through the upcoming National Day holiday.

The PBC offered seven-day reverse repos worth 35 billion yuan at a bid rate of 3.35 percent and 20 billion yuan worth of 28-day reverse repos at 3.60 percent, according to the PBOC.

The PBOC has likely decided to offer 28-day repos - instead of the 14-day contracts it has frequently been extending in recent weeks - in order to both prevent market liquidity from becoming strained during the eight-day holiday which starts on September 30 and dampen the possibility of a rebound in inflation and housing prices, Zhou Hao, a market analyst from ANZ China, told the Global Times.

"September 30 is the end of the third quarter and the start of a long holiday, so capital demand is expected to increase soon. It's understandable if the PBC wants to issue reverse repos which will mature after the holiday," Zhou said, noting that the 28-day reverse repos will come due on October 11.

On August 29, the PBOC began gauging dealer demand for 28-day reverse repos, according to local media reports.

The PBC's switch to issuing longer-term reverse repos also points to its weakening will to take drastic easing measures, such as cutting the reserve requirement ratio (RRR) for the country's banks, Guo Tianyong, director of the Research Center of China Banking at Central University of Finance and Economics, told the Global Times. "The government is regularly issuing reverse repos instead of lowering the RRR as it is worried that such a move would increase inflationary pressure and drive up property prices," Guo said.

In recent months, the PBOC has gradually been extending the length of its reverse repo contracts. Beginning July 10, the central bank issued seven-day reverse repos exclusively for five consecutive weeks, before switching to a mix of seven-day and 14-day contracts.