From Crypto Briefing, June 28/29:
China's central bank launches a new short-term liquidity tool, initially withholding the interest rate in a move that caught markets off guard
The People’s Bank of China just added a new weapon to its monetary policy arsenal. On June 29, the PBOC executed its first-ever overnight reverse repo operation, pumping 300 billion yuan, roughly $44 billion, into China’s financial system.
Here’s the thing that rattled traders: the central bank didn’t specify the interest rate. Market observers had been expecting something in the 1.25% to 1.35% range, so the silence was, to put it mildly, conspicuous. The rate was later set at 1.25%, according to Reuters, landing at the floor of analyst expectations.
What an overnight reverse repo actually means
Think of a reverse repo as the central bank lending money to commercial banks for a very short period, using government bonds as collateral. The “overnight” part is new here. Previously, the PBOC’s shortest standard tool was its seven-day reverse repo, which it also conducted on June 29 at a steady rate of 1.4%, injecting an additional 157.5 billion yuan....
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