People’s Bank of China Governor Pan Gongsheng used his keynote at the Financial Street Forum in Beijing on Monday to lay out the next stage of China’s monetary policy framework, saying the central bank will study switching its main open market operation from the seven-day tenor to overnight, so that the overnight reverse repo rate becomes the main policy rate. The interbank overnight repo rate, known as DR001, has in practice already become the target rate of monetary policy, Pan said, because it responds sensitively to short-term liquidity conditions and has run more stably in recent years, while the bank’s main operation and policy rate still sit at seven days.
The speech carried five immediate measures. First, the People’s Bank will set up, with the National Financial Regulatory Administration and the China Securities Regulatory Commission, a liquidity support tool for non-bank institutions facing large redemptions. The tool is designed as a bond market stability mechanism, to be activated only in the specific scenario of group liquidity stress at asset managers and a redemption and selling spiral in the bond market; operations will require high-grade collateral and compliance with macroprudential requirements, and eligible institutions include bank wealth management subsidiaries, public fund managers and their parent banks and securities firms. Second, the standing lending facility, currently aimed mainly at city commercial and rural banks, will be extended to foreign legal-person banks in China with the same arrangements as national banks, completing coverage of deposit-taking institutions. Third, interconnection between the interbank and exchange bond markets is ready to be implemented once infrastructure operators and market participants complete testing. Fourth, eight Chinese and foreign offshore renminbi clearing banks will be piloted to trade renminbi purchase and sale business on their own account in the onshore interbank foreign exchange market, and foreign clearing banks will be added to the central bank’s offshore repo tool for foreign central banks and sovereign funds. Fifth, guidance on financial support for the Beijing, Shanghai and Greater Bay Area international science and technology innovation centres will be issued with ten other departments.
On the framework, Pan said loan pricing should diversify away from sole reference to the loan prime rate: some financially strong companies may in future choose DR001 or the loan prime rate as their floating-rate benchmark by agreement with their bank, while the loan prime rate continues as the benchmark for small business and household loans, and the central bank will issue policy guidance in due course. The deposit and lending benchmark rates, unchanged since October 2015 and no longer used in actual pricing, will be retired, with the remaining judicial uses switched to market-based rate indicators. On the exchange rate, Pan restated that China runs a managed float based on market supply and demand against a currency basket, that the central bank exited regular intervention after 2017, and that China has no need or intention to seek trade advantage through depreciation. Counting payments through the CIPS system and bank internal channels alongside SWIFT, he put the renminbi’s share of international payments at roughly 6 to 7 percent, third globally.
At the same forum, Deputy Governor Zhu Hexin, who heads the State Administration of Foreign Exchange, said a package of incremental foreign exchange measures is being prepared: a current account facilitation package for trade firms, a capital account optimisation package for cross-border investment and financing, and an expansion of the pilot allowing securities firms to conduct foreign exchange settlement and sales, aimed at helping companies manage exchange rate risk. Zhu marked 30 years since China accepted current account convertibility in 1996 and said more than 50,000 creditworthy companies could complete foreign exchange business without document review as of the end of June, up about 30 percent from the end of 2025.
Reuters reported that China’s 30-year government bond yield fell more than one basis point after the announcement, and that the shift brings the People’s Bank’s framework closer to global peers such as the Federal Reserve, which already anchor policy on overnight rates; the seven-day reverse repo rate has been China’s main policy benchmark since 2024. The package answers the question this morning’s loan prime rate preview left open: with the one-year and five-year loan prime rates expected to stay at 3.00 percent and 3.50 percent for a seventeenth month on Tuesday, the easing and reform effort is being carried by the framework and by targeted liquidity tools, not by the headline lending rates.