China's PBOC Considers Switching Policy Rate Benchmark from '7-Day' to 'Overnight'

The People's Bank of China (PBOC), China's central bank, is pursuing a plan to shift its main policy rate from the existing 7-day reverse repo rate to the overnight rate. The move is intended to strengthen its control over the short-term money market and improve the effectiveness of monetary policy.

Yonhap News Agency

According to Bloomberg and other media outlets on Oct. 20 local time, PBOC Governor Pan Gongsheng said at an event in Beijing on Oct. 19 that the bank was considering switching its main open market operation tool to overnight operations at an appropriate time and adopting the overnight repo rate as its main policy rate.

The PBOC has used the 7-day reverse repo rate as its main policy rate since 2024. A reverse repo is a tool through which a central bank supplies short-term liquidity to the market by purchasing securities from financial institutions and reselling them after a set period.

The change comes as overnight transactions have grown to account for a larger share of China's short-term money market. More than 80% of interbank repo trading volume in China is now conducted overnight. The PBOC first conducted open market operations using overnight transactions in late June 2026.

“The interbank overnight repo rate has effectively become the target rate for the central bank's monetary policy,” Governor Pan said, adding that it “reflects short-term liquidity supply and demand sensitively while showing a more stable trend in recent years.” He added that the change is expected to strengthen the PBOC's control over short-term interest rates and enable it to implement more precise monetary policy.

This content was produced with the assistance of AI translation services.