Overview
- The People’s Bank of China will run fixed-rate overnight reverse repos at 1.25% every working day and supplied 541 billion yuan through those operations, a change that sets the overnight rate as the central operating signal.
- Changing the anchor shifts other short-term tools to price off the overnight rate, which should give the central bank clearer control of interbank funding costs and reduce month-end and tax-period volatility.
- At 1.25% the overnight rate sits about 15 basis points below the seven-day reverse repo, a difference analysts say effectively lowers the floor for banks’ funding costs and can push yields lower along the bond curve.
- The move comes as China’s October activity surveys showed slowing growth and recent bond-market stress tied to credit worries at developers such as Zhuhai Huafa, and regulators have held talks with banks about capital-market support.
- This reform follows the overnight tool’s June debut and Pan Gongsheng’s October comments that the PBOC was considering the switch, while the seven-day repo will remain for episodic use around tax and month-end liquidity needs.