China plans to make overnight repo rate its primary policy benchmark
The People’s Bank of China said it will shift its main policy rate from the seven-day reverse repo to the overnight reverse repo, aligning with global practice.
During a forum in Beijing, Pan Gongsheng, governor of the People’s Bank of China, indicated that the central bank will consider replacing one outlet seven-day reverse repurchase rate with the overnight reverse repo rate as its main policy benchmark. The overnight repo, known as DR001, is the most liquid product in China’s interbank money market and already guides the PBOC’s operations. The overnight rate stayed at 1.26% following the announcement, and the offshore yuan rose modestly to 6.6813 per dollar.
Government bond yields were largely unchanged. The shift would bring China’s monetary-policy stance closer to that of major central banks, which target overnight market rates. Since June, the PBOC has been expanding its short-term liquidity tools, conducting monthly overnight reverse repo operations that have helped meet funding needs around month-end and tax payments.
Why it matters
Changing the benchmark to an overnight rate could make China’s monetary policy more transparent and comparable to other major economies.
In this story
