PBOC to speed-up SLOs

Central bank to begin carrying out more Short-term Liquidity Operations (SLO).

The People's Bank of China will allow 12 commercial banks to request shorter-term repurchase agreements or repos and reverse repos. This is in addition to the instruments it already routinely offers during the open market operations (OMO) it conducts Tuesdays and Thursdays. These moves will allow the central bank to act more promptly when it comes to adjusting liquidity.

Accelerating SLOs will see PBOC offer repos and reverse repos with maturity periods less than seven days. Repos and reverse repos and longer-term central bank bills are the instruments most commonly used by the central bank to ensure market liquidity and control short-term money rates.

PBOC has almost always set the periods of the repos and reverse repos from between 7 days and 28 days.

Short-term instruments will be employed to increase the flexibility of OMOs when there are temporary fluctuations in the amount of money within the market, said PBOC. This move highlights just how important OMOs have become to China's central bank in terms of monetary policy, analysts said.

The 12 authorized banks, including the Big Four state-owned banks, are now required to hand over their liquidity requests every trading day. In the past, the PBOC queried 37 primary traders about liquidity demand Mondays and Wednesdays.

With the accelerated reverse repos, it is expected that the PBOC will trim the reserve requirement ratio for banks less frequently.