PBOC shifts policy focus to overnight reverse repo rate

The People’s Bank of China (PBOC) has announced the level of its new key rate, setting the overnight reverse repurchase agreement rate at 1.25 percent. This rate is lower than the current 1.4 percent seven-day benchmark rate.

The central bank is transitioning to make the overnight rate its primary policy lever. Starting Monday, the PBOC will conduct overnight reverse repo operations daily. Additionally, the bank will move from a single fixed rate to multiple rates for seven-day reverse repo transactions.

This move follows months of secrecy regarding the specific overnight rate. Analysts noted the timing was earlier than expected, as some had predicted the transition would take longer to implement. The shift is viewed by some investors as a form of de facto easing intended to lower short-end rates in money markets.