Overview
- PBOC Governor Pan Gongsheng said on Monday the central bank is formally studying a shift from the seven-day reverse repo to the overnight reverse repo as its primary policy anchor.
- Markets expect China’s loan prime rates to be left unchanged for a 17th month with the one-year LPR at 3.00% and the five-year LPR at 3.50%.
- The overnight repo currently trades below the seven-day rate at about 1.25% versus 1.40%, so adopting the overnight rate as the anchor could be read as a modest easing if the new operating rate is set near that level.
- The PBOC also said it will widen access to its Standing Lending Facility and create liquidity tools for non-bank financial firms to strengthen short-term funding channels.
- Stronger-than-expected Q3 growth of 4.5% has reduced near-term pressure for cuts, but traders will watch the timing and level of any switch for effects on bond yields, the yuan and bank lending margins.