Following the downward adjustment of the MLF (Medium-term Lending Facility) interest rate on November 5, the PBC (People's Bank of China) once again operated "rate cut" during the month, which has triggered widespread market attention. On November 18, the PBC restarted the reverse repurchase operation and lowered the interest rate from 2.55% to 2.5%, which is the first decrease of the 7-day reverse repurchase operation interest rate time since October 27, 2015. On that day, the three major stock indexes of the stock market turned red, and the bond market rose sharply. Many analysts pointed out that through the combination of reverse repurchase and MLF policy instrument, long-term and short-term interest rate matching can ensure reasonable and ample liquidity and stable liquidity expectations. In addition, both the money market interest rate and the reverse repurchase downregulating make the downward adjustment of the MLF interest rate possible. It is expected that the LPR (Loan Prime Rate will further decline with the policy rate and that there is still the possibility for the deposit reserve ratio to go down at the end of this year or early next year. 

What Is A Reverse Repurchase? What Is A 7-day Reverse Repurchase? 

The PBC's reverse repurchase refers to the PBC's purchase of securities from primary dealers, lending of funds, and arranging to sell securities to primary dealers at specific dates in the future; a seven-day reverse repurchase means that the agreed period is 7 days. 

To put it bluntly, it is to actively lend money for bond pledge, which is to release liquidity to the market. 

The repurchase means that the PBC sells securities, recovers funds, and tightens liquidity. 

After 15 days of continuous suspension of reverse repurchase, the PBC once again issued a large-scale reverse repurchase, with an unexpected surprise -- "rate cut" by 5 base points. 

This is another PBC "rate cut" after the release of MLF on November 5. 

On November 5, the PBC lowered the interest rate of Medium-term Lending Facility (MLF) operation from 3.3% to 3.25%, which was interpreted by the market as "rate cut" and boosted market confidence. 

On the last working day, that is, November 15, the PBC launched the second Medium-term Lending Facility (MLF) this month and releases RMB200 billion of funds. On the same day, the PBC made the second adjustment, a targeted reduction of 1% in the city commercial banks, releasing about RMB40 billion of long-term funds. 

Source | Beijing Business Today, Chief Financial Observer (Public account: meirijingji001)