Caixin Explains: What China’s Proposed Shift to an Overnight Policy Rate Would Mean
Caixin Global · Ding Feng Published Oct ·
The PBOC is considering replacing seven-day operations as its main policy tool and giving financially strong companies an alternative loan-pricing benchmar
1. The People's Bank of China (PBOC) is considering shifting its primary open-market operations from seven-day to overnight maturities, aiming to align its policy-rate framework more closely with the active money market. [para. 1] On October 19, Governor Pan Gongsheng stated the bank would study this switch "at an appropriate time," and the rate on these operations would become the main policy rate, guiding the market-traded overnight repo rate, DR001. [para. 2]
2. The proposal is not an immediate change. On October 20, the PBOC announced overnight reverse repos—cash injections—for nine working days from October 21 to November 2, with daily operations capped at 1 trillion yuan ($149 billion). [para. 3] This extended window addresses overlapping funding pressures from tax payments delayed by the National Day holiday and month-end liquidity needs, according to Wang Qing of Golden Credit Rating International. [para. 4]
3. The PBOC also plans to broaden loan-pricing benchmarks beyond the loan prime rate (LPR). Financially strong companies could negotiate with banks to use either DR001 or the LPR for floating-rate loans, while the LPR remains a benchmark for individuals and small businesses. [para. 5] The one-year and five-year LPRs stand at 3% and 3.5% respectively, unchanged for 17 consecutive months as of October. [para. 6] Additionally, Pan stated the PBOC would phase out legacy benchmark deposit and lending rates, unchanged since October 2015, replacing their remaining uses (e.g., judicial calculations) with market-based indicators, including average deposit rates published since the first quarter of 2026. [para. 7]
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