FX.co ★ PBoC Moves Toward Overnight Rate as Main Policy Anchor

Starting Monday, the People’s Bank of China will shift its short-term monetary policy framework to focus on the overnight rate, launching daily overnight reverse repo operations at a fixed rate of 1.25%. This adjustment moves the overnight rate toward becoming the central policy anchor, replacing the long-dominant seven-day rate as the key benchmark.

The new operations will be conducted through fixed-rate, quantity-based tenders, aiming to enhance the management of short-term interest rates. The 1.25% overnight reverse repo rate, publicly disclosed for the first time, is lower than the current 1.4% seven-day reverse repo rate and is broadly in line with both market expectations and prevailing borrowing costs.

Under the revised framework, other liquidity instruments—including temporary repo and reverse repo operations—will be priced off the overnight rate, while maintaining existing spreads. Seven-day operations will remain in place but will transition to fixed-quantity tenders with multiple winning bid rates. They will primarily be used to meet liquidity demand during periods of heightened funding needs, such as tax payment dates and month-ends.