China's central bank tweaks liquidity operations amid strong bond demand

BEIJING/SHANGHAI, July 8 (Reuters) - China's central bank said on Monday it would start conducting temporary bond repurchase agreements or reverse repos to make open market operations more efficient and keep banking system liquidity ample.

Market participants and analysts believe the move paves the way for a new interest rate corridor, with the seven-day reverse repo rate serving as a central guide, giving the bank more leeway to manage cash conditions and interest rates amid hot demand for bonds.

That also comes after the central bank's governor said the seven-day rate "basically fulfils the function" as the main policy rate.

The temporary repos and reverse repos will be loans with overnight tenors and will be conducted depending on market conditions.

The interest rates of the temporary and reverse repos will be 20 basis points below and 50 basis points above the seven-day reverse repurchase operations, or 1.6% and 2.3%, respectively.

"From now on, the People's Bank of China (PBOC) will conduct temporary repos or temporary reverse repo operations depending on conditions," the central bank said in an online statement.

Reverse repo operations should allow the centr...
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