SHANGHAI, July 26 Reuters China39;s latest series of rate cuts show the central bank39;s monetary framework has changed, analysts said, with the shortterm repo rate becoming the primary signal and a diminished role for its mediumterm lending facility MLF.

CONTEXT

The People39;s Bank of China PBOC surprised markets this week by first cutting several key rates including loan prime rate LPR and reverse repo rate on Monday. It then conducted an unscheduled MLF lending operation on Thursday, at steeply lower rates.

The sequence was a departure from the past, as MLF rate changes have historically been a precursor to LPR and deposit rate changes. The central bank also introduced a new cash management tool earlier this month in the form of temporary bond repurchase repo agreements and reverse repos.

WHY IT39;S IMPORTANT

China39;s central bank governor Pan Gongsheng said at the Lujiazui forum in June that he wanted the sevenday reverse repo rate to be the key benchmark.

Analysts say the PBOC is moving away from targeting money supply and towards the price of money. That means controlling shortterm repo rates rather than the MLF, as the latter is used more to bridge funding shortfalls at banks.

Investors are closely tracking changes in the PBOC39;s policy transmission mechanism amid heightened bond market volatility, as expectations rise for new steps to support a shaky economy and prevent too much cash being parked in safehaven bonds.

BY THE NUMBERS

The PBOC lent oneyear…