China's central bank moves to an overnight rate: 1.25% from November 2

What happened. On October 30 the People's Bank of China (PBOC) said that from November 2 it would run overnight reverse repo operations every working day. A reverse repo means the central bank lends cash to banks against securities, here for one day. The rate is fixed and the amount depends on bids. It is currently 1.25%. Reuters says the bank disclosed that figure for the first time.

What changes for 7-day operations. The 7-day reverse repo rate, 1.4%, used to be the main anchor. These operations now use a fixed amount with multiple winning rates, mainly around tax payment periods and month-ends. Other tools that were priced off the 7-day rate, including repo facilities for overseas central banks, are now priced off the overnight rate. The spreads stay the same.

Why. PBOC Governor Pan Gongsheng said at the Financial Street Forum in October that the bank would study moving its main operations to overnight to manage rates more precisely. The overnight repo rate would then become the main policy rate. Zhou Hao, chief economist at Guotai Junan International, called the move the clearest signal yet that China is moving to a system like the Fed, ECB and Bank of Japan.

What it means. Reuters says the 1.25% rate is broadly in line with market expectations and what such money already cost. So this is more a change in plumbing than new easing. But short-term money is now tied to a lower number than 1.4%. Ming Ming, chief economist at Citic Securities, says the reform lays the groundwork for new benchmarks for loan rates. That is his view.

What is not known. The bank has not yet said that 1.25% officially replaces 1.4% as the main rate. It has not said how loan prime rates (LPR) will change either. How the yuan reached a four-year high: https://freekonomist.com/en/news/yuan-four-year-high-pboc-fixing-2026-10/

已确认的事实

• From November 2, 2026 the PBOC holds fixed-rate overnight reverse repo tenders every working day, currently at 1.25%.^[1][2]
• 7-day reverse repos move to a fixed-quantity tender with multiple winning rates, mainly around tax payment periods and month-ends.^[1][2]
• Tools previously priced off the 7-day rate, including repo facilities for overseas central banks, are now priced off the overnight rate, with spreads unchanged.^[1][2]
• The 1.25% rate was disclosed for the first time and sits below the 7-day reverse repo rate of 1.4%.^[2]
• Pan Gongsheng said the bank would study switching main operations to overnight, making the overnight repo rate the main policy rate.^[1]
• Zhou Hao of Guotai Junan International called the move the clearest signal yet of a shift to a system like the Fed, ECB and Bank of Japan.^[2]
• Overnight reverse repo operations debuted in late June 2026.^[2]

影响

• 已确认Short-term money in China now takes its cue from 1.25%, not 1.4%.
• 我们的解读Markets are likely to read this as a technical reform rather than a rate cut, since 1.25% matched expectations. This is our view.
• 我们的解读If loan rates are tied to the new rate, borrowing for Chinese businesses could get cheaper. This is our view.

仍未知

• When 1.25% will be officially named the main policy rate
• Whether loan prime rates will change
• The size of the first daily operations

影响到谁

China, World. People who follow the yuan, Chinese stocks and bonds, and commodities

来源

1. Xinhua (PBOC announcement): 央行：每个工作日开展隔夜逆回购操作招标 2026年10月30日 · 官方
2. Reuters: China's central bank steps up shift toward overnight rate as policy anchor 2026年10月30日 · 媒体