BEIJINGSHANGHAI, July 8 Reuters China39;s central bank said on Monday it would start conducting temporary bond repurchase agreements or reverse repos to make open market operations more efficient and keep banking system liquidity ample.

Market participants and analysts believe the move paves the way for a new interest rate corridor, with the sevenday reverse repo rate serving as a central guide, giving the bank more leeway to manage cash conditions and interest rates amid hot demand for bonds.

That also comes after the central bank39;s governor said the sevenday rate basically fulfils the function as the main policy rate.

The temporary repos and reverse repos will be loans with overnight tenors and will be conducted depending on market conditions.

The interest rates of the temporary and reverse repos will be 20 basis points below and 50 basis points above the sevenday reverse repurchase operations, or 1.6 and 2.3, respectively.

From now on, the People39;s Bank of China PBOC will conduct temporary repos or temporary reverse repo operations depending on conditions, the central bank said in an online statement.

Reverse repo operations should allow the central bank to inject cash into the banking system, whereas the repos could withdraw funds.

If OMO repos were to be conducted, then the OMO repo rate could serve as the floor as this would be the rate the PBOC pays to absorb excess liquidity from the market, said Frances Cheung, rates strategist at OCBC Bank.

Being…