China's central bank studies making overnight rate its main policy rate
FXI•The People's Bank of China is considering replacing its seven-day reverse repo rate with the overnight rate as its main policy benchmark, aiming to improve control of short-term interest rates. The shift is not a rate cut; the bank also plans loan-pricing reforms and expanded liquidity support for non-bank institutions.
1. Policy rate review
The People's Bank of China is considering making the overnight reverse repo rate its main policy rate, replacing the seven-day rate that has served as its benchmark since 2024. Governor Pan Gongsheng said the overnight interbank repo rate has effectively become the central bank's target rate, reflecting short-term liquidity supply and demand and showing greater stability in recent years.
2. No rate cut planned
Pan said the shift is intended to make interest-rate control more precise. The actual operating rate for overnight reverse repos will be announced when the change is made, and the switch does not amount to a rate cut, Wang Qing, chief macro analyst at Golden Credit Rating International, said. The average overnight repo rate was around 1.25%, near a five-month low and below the seven-day rate of 1.4%.
3. Other policy measures
The central bank also plans guidance to broaden loan-pricing benchmarks beyond the loan prime rate. Some financially strong companies could choose the overnight repo rate or the loan prime rate for floating-rate loans. The PBOC will widen eligibility for its Standing Lending Facility and create a liquidity support tool for non-bank financial institutions, including insurers and fund managers.
