China Sets Rate on New Overnight Liquidity Tool Below Estimates

China's central bank set the rate on a new overnight liquidity tool at 1.70 percent, below the 1.80 percent level analysts had expected. The facility, introduced last week, allows banks to borrow funds for one day using government bonds as collateral. Officials said the tool is intended to improve short-term liquidity management.

The rate decision follows a series of cash injections into the banking system over the past month. Those operations added more than 500 billion yuan in short-term funds. Market participants interpreted the lower rate as a signal that further policy easing could occur before the next scheduled meeting.

Bond yields fell after the announcement, with the 10-year government bond yield dropping five basis points to 2.15 percent. Equity futures also rose in early trading. Traders said the move could reduce borrowing costs for banks and support lending in the coming weeks.