PBOC considers overnight repo rate as main policy benchmark
China's central bank is studying making the overnight reverse repurchase rate its main policy rate, replacing the current seven-day repo rate. Governor Pan Gongsheng said the change would improve monetary policy transmission and align with global peers like the US Federal Reserve.
China's central bank is considering switching its main policy rate to the overnight reverse repurchase rate, state media reported on Monday, in a shift aimed at improving the transmission of monetary policy to support the economy.
The overnight repo rate would replace the seven-day reverse repo rate, which has served as the main policy benchmark since 2024, according to the People's Bank of China (PBOC).
PBOC Governor Pan Gongsheng said the change is part of efforts to refine the central bank's control of short-term interest rates, the central bank-run Financial News reported. "Currently, the interbank overnight repo rate has effectively become the target rate for the PBOC's monetary policy," Pan was quoted as saying at a key financial forum in Beijing. "It sensitively reflects the supply and demand for short-term liquidity and has shown greater stability in recent years."
The change will make interest rate control more precise, Pan said. The policy shift gives the PBOC greater control over liquidity conditions and brings its policy framework more in line with global peers, such as the US Federal Reserve, which already uses overnight rates as its main policy rates to better anchor the yield curve.
China's 30-year government bond yield fell more than 1 basis point after the announcement, according to Reuters. The PBOC will also widen the range of institutions eligible to use its Standing Lending Facility and set up a liquidity support tool for non-bank financial institutions, Pan said. The measures are aimed at strengthening liquidity support for non-bank institutions, including insurers and fund managers.