China's Central Bank Signals Shift to Overnight Policy Rate

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The People's Bank of China signaled a potential shift toward using an overnight policy rate, a move that would align it more closely with the Federal Reserve and other major central banks. Governor Pan Gongsheng said at the Lujiazui Forum that the PBOC will improve its adjustment of short-term interest rates and expand overnight reverse repo operations, setting their rates at 25 basis points above and below the seven-day reverse repo rate, which narrows the interest-rate corridor to 50 basis points from 70 basis points. The remarks add to signs that the PBOC may eventually move away from the seven-day reverse repo rate as its main policy benchmark, giving policymakers greater precision and flexibility in steering short-term funding costs. The PBOC last cut its seven-day policy rate by 10 basis points to 1.4% in May 2025, and has recently guided overnight funding rates back to that level after abundant liquidity pushed market borrowing costs down to around 1.2%. A shift to an overnight rate would mark another step in the PBOC's revamp of its policy framework that began two years ago, aimed at simplifying a system that relied on multiple policy tools.

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Bank of China Limited
601988
± MixedMonetaryrelevance

Bank of China may benefit from a more efficient policy framework, but the article does not specify direct impact on its operations or earnings.

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