China's central bank steps up shift toward overnight rate as policy anchor
TLT•China's central bank will conduct overnight reverse repo operations every business day starting next Monday, with the rate currently at 1.25%. It will also change how it conducts seven-day reverse repo operations.
1. Daily overnight operations
The People's Bank of China said it will conduct overnight reverse repo operations every business day starting next Monday, using a fixed-rate, quantity-based tender. The operating rate is 1.25%, which the bank disclosed for the first time.
2. Changes to seven-day repos
The central bank said its seven-day reverse repo operations will use a fixed-quantity, interest-rate tender with multiple winning bid rates, mainly around tax payment periods and month-ends. Tools previously priced relative to the seven-day rate will instead be priced relative to the overnight rate, with spreads unchanged.
3. Policy framework shift
The PBOC said the move aims to improve its management of short-term interest rates. Governor Pan Gongsheng said earlier this month that the bank was studying whether to switch its main policy rate to the overnight reverse repo rate.
