China's Central Bank Creates New Liquidity Tools to "Help" Monetary Policy

China’s central bank has announced the introduction of temporary bond repurchase agreements and reverse repos to enhance open market operations and maintain ample banking system liquidity. This move is seen as a step towards establishing a new interest rate corridor, with the seven-day reverse repo rate as the central guide. The new tools will have overnight tenors and interest rates set 20 basis points below and 50 basis points above the seven-day reverse repo rate. This adjustment aims to give the central bank more flexibility in managing cash conditions and interest rates, particularly in response to high demand for bonds. The change aligns with the central bank governor’s recent statement about the seven-day rate’s role as the main policy rate.