The People's Bank of China (PBOC) began its new overnight reverse repurchase agreement operations on Monday but notably withheld the interest rate at which the funds were provided, diverging from expectations that it would set the rate between 1.3% and 1.35%. This unexpected move led to a significant increase in the overnight Shanghai Interbank Offered Rate (Shibor), which jumped 9 basis points to 1.38% by mid-day, marking its largest single-day rise since late May. Analysts from Citic Securities and OCBC Bank expressed surprise at the PBOC's decision, highlighting the lack of transparency and the implied tightening effect on liquidity.
The PBOC conducted 130 billion yuan ($17.9 billion) in seven-day reverse repos at a 1.4% rate, while its notice for the overnight operation simply stated "fixed rate, quantity bidding." This lack of a publicly announced fixed rate for the overnight tool prompted speculation among observers like Citic Securities' Ming Ming. Guosheng Securities had anticipated a 1.3% rate, while a Bloomberg survey of 17 analysts forecasted a median of 1.35%, both lower than the 1.4% for seven-day repos.
The absence of an explicit rate for the overnight reverse repo led some analysts, including Xing Zhaopeng from ANZ Banking Group, to suggest the PBOC is still exploring its policy framework and may use future operations to guide the market. This situation highlights the PBOC's ongoing efforts to refine its monetary policy toolkit and steer short-term borrowing costs through open market operations, though the initial execution has introduced an element of uncertainty regarding its immediate intentions.
