China’s central bank held its debut overnight reverse repo operation without disclosing the rate of interest it charged on its new instrument, in a surprise move to traders awaiting guidance on borrowing costs.The People’s Bank of China said it conducted 300 billion yuan (US$44bil) of overnight reverse repurchase agreements in open market operations on Monday, according to a statement. It also provided 157.5 billion yuan of seven-day reverse repos at an unchanged rate of 1.4%.The PBOC announced earlier it’s introducing the overnight tenor into its open-market operations on June 29-30, utilising a fixed-rate format for primary dealers to bid for funds. The market was expecting the central bank to set the overnight reverse repo rate around 1.35%, according to a Bloomberg survey on Friday.Traders and analysts are watching the operation closely in search of insights into the PBOC’s plans for managing liquidity. The cost of overnight borrowing in the interbank market has become more volatile since May, as the central bank sought to ease a glut of money in the financial system, with demand for cash typically rising at the end of each quarter.The new facility gives the PBOC better control over short-end borrowing costs and allows it to smooth out any big swings in market liquidity. – Bloomberg
