China Is Considering Changing Its Main Monetary Policy Rate

The People's Bank of China is considering a change to its interest rate policy. The bank wants the overnight reverse repo rate to become the main benchmark. Currently, this role is filled by the seven-day rate, which has been in use since 2024.

According to central bank governor Pan Gongsheng, the overnight rate reflects market conditions more quickly. This will allow the bank to influence interest rates faster when necessary.

A similar system operates at the US Federal Reserve and other central banks, where short-term interest rates are used to manage monetary policy.

China's central bank also plans to change its funding rules. If needed, a larger number of financial institutions will be able to obtain short-term loans from it. A separate facility will also be created for insurance companies and investment funds, so they can quickly access funding in case of a shortage of cash in the market.

Source: Reuters