People's Bank of China announces interest rate and liquidity reforms

Pan Gongsheng, Governor of the People's Bank of China (PBOC), has announced several major financial reforms aimed at improving the precision of interest rate regulation and market stability. A key proposal involves studying the transition of primary open market operations from seven-day reverse repos to overnight reverse repos, which would establish the overnight repo rate as the main policy rate.

To bolster market stability, the PBOC plans to introduce liquidity support tools for non-bank financial institutions to manage large-scale redemption risks in the bond market. The central bank also intends to expand the scope of the Standing Lending Facility (SLF) and push for reforms in loan pricing benchmarks, moving away from a single reliance on the Loan Prime Rate (LPR) toward more diversified market-based indicators.

Regarding financial openness, the PBOC plans to pilot a program allowing eight domestic and foreign RMB clearing banks to conduct proprietary trading in the domestic interbank foreign exchange market. This move is intended to facilitate deeper participation by overseas institutions in China's foreign exchange markets.