China's central bank signaled it may replace its seven-day reverse repurchase rate with the overnight reverse repo rate as the new policy benchmark, potentially easing borrowing costs. Governor Pan Gongsheng stated the PBOC will study switching the main tenor of open market operations to overnight, making the overnight reverse repo rate the primary policy rate. With the overnight rate set at 1.25% since June — below the current seven-day benchmark of 1.4% — analysts view this as a de facto rate cut.
The shift aligns China with global central banks that use overnight rates as their primary policy tool. Xing Zhaopeng of ANZ Banking Group noted this will substantially change the policy framework, though the exact rate level remains unclear. The yuan rose 0.1% to 6.6813 per dollar offshore, while 10-year and 30-year bond yields held at 1.64% and 2.06%.
The PBOC has offered overnight reverse repos monthly since June, increasing volume to meet month-end funding demand. This move could make overnight borrowing costs — now below 1.3% — the new anchor for market rates, reducing reliance on the seven-day reverse repo rate.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing