PBOC bent on lowering interest rates

Based on decline in repurchase rate.

The PBOC injected RMB8b into the market last week, and more importantly, last week's 14-day repurchase rate fell 20bp to 3.50%.

According to a research note from CCB Internationa,, this is the second decline in the repurchase rate in two months following the 10bp reduction to 3.7% in July.

The report noted that it believes this development sends a clear signal that the PBOC is determined to lower interest rates.

Here's more from CCB International:

Apart from this, PBOC also provided RMB500b in liquidity to the Big-five banks in the form of three-month short-term lending facilities (SLF).

The scale of this liquidity injection was equivalent to 50bp full-scale RRR cuts.

Due to its three-month duration, SLFs give the PBOC the flexibility to opt out should it wish to renew SLF operations three months hence.

If the economy remains weak, the PBOC may renew the SLFs; otherwise, the banks have to return RMB500b to the PBOC. By this means, excess liquidity would be drained from the banking system.

In addition, because of their duration, SLFs are more suited to easing short-term liqduity pressure arising from seasonal cash demand peaks near quarter-end and due to the National Holiday in October.