China’s Central Bank Moves to Daily Overnight Repos at 1.25% in Shift to a New Policy Anchor

Photo: Max12Max, Wikimedia Commons, CC BY-SA 4.0 (file photo, 2016). People’s Bank of China headquarters, Beijing.

The People’s Bank of China said on Friday, Oct. 30, that it will run overnight reverse repo operations every working day starting Monday, Nov. 2, a step toward making the PBOC overnight reverse repo rate the main anchor of Chinese monetary policy. The central bank also disclosed, for the first time, that the rate on those operations currently stands at 1.25%, according to Reuters.

The change matters well beyond Beijing’s money markets. China is the world’s second-largest economy, and the way its central bank signals interest rates shapes borrowing costs for banks, companies and local governments. Moving to a daily overnight tool brings the PBOC closer to the framework used by the U.S. Federal Reserve, the European Central Bank and the Bank of Japan, which steer very short-term rates.

What the PBOC announced

Under Friday’s statement, overnight operations will be held through a fixed-rate, quantity-based tender on each business day, Reuters reported. The 1.25% rate sits below the seven-day reverse repo rate of 1.4%, which has served as the bank’s main policy signal. The new disclosure is not a rate cut: the seven-day rate was left at 1.4%, and the overnight rate had not been published before.

The seven-day operations are also being redesigned. They will move to a fixed-quantity, interest-rate tender with multiple winning bid rates, and will be held mainly around tax-payment periods and month-ends. Other tools that had been priced as a spread above or below the seven-day rate, including temporary repo and reverse repo operations and repo facilities for overseas central-bank-type institutions, will instead be priced as a spread to the overnight rate, with the size of those spreads unchanged, the PBOC said, according to Reuters.

The bank first added overnight reverse repos to its toolkit in late June. Earlier in October, Governor Pan Gongsheng told a financial forum that the PBOC was studying a switch of its main policy rate to the overnight reverse repo rate, Reuters reported.

How economists read the shift

“What occurred today is arguably the clearest signal yet that the PBOC is moving toward an overnight-rate-based operating system similar to those employed by major central banks including the Federal Reserve, the European Central Bank and the Bank of Japan,” Zhou Hao, chief economist at Guotai Junan International, told Reuters.

Ming Ming, chief economist at Citic Securities, said the reform of the short-end mechanism laid groundwork for diversifying the benchmarks used to price loans and for passing broad declines in interest rates through the economy, according to the same report.

On the same day, Chinese state broadcaster CGTN reported that the PBOC will keep a “moderately loose” monetary policy and ample liquidity, and that the securities regulator pledged to stabilize the capital market !Unverified claim, CGTN (Chinese state media). The “moderately loose” wording matches the central bank’s stated policy line this year.

By the numbers: growth near the bottom of the target

The plumbing change arrives as growth has cooled. China’s National Bureau of Statistics (NBS) said gross domestic product grew 4.5% year on year in the third quarter of 2026, up from 4.3% in the second quarter but below the 5.0% recorded in the first quarter. Growth for the first three quarters combined was 4.6%, and output rose 1.2% from the previous quarter on a seasonally adjusted basis, the NBS said.

TBR calculations from the NBS tables: third-quarter growth of 4.5% is 0.9 percentage points below the 5.4% pace of the first quarter of 2025 and 0.3 points below the 4.8% of the third quarter of 2025. Of the 11 quarters since the start of 2024, the second quarter of 2026 (4.3%) was the weakest. Beijing’s 2026 target is growth of 4.5% to 5%, and the International Monetary Fund cut its 2026 forecast for China to 4.5% earlier this month, Euronews and AP reported.

The sector detail shows where the strain sits. In the third quarter, value added in real estate fell 0.4% and construction dropped 4.4% from a year earlier, while information transmission, software and IT services grew 9.8% and manufacturing grew 5.9%, according to the NBS. Exports remain a support: China ran a trade surplus of $938 billion from January through September, Euronews reported.

Big banks post faster profit growth

China’s largest state-owned lenders reported results the same day. Industrial and Commercial Bank of China, the world’s biggest bank by assets, said third-quarter net profit rose 9.97% to 111.958 billion yuan, with its net interest margin flat at 1.29% from the end of June, Reuters reported. Agricultural Bank of China, China Construction Bank and Bank of Communications reported growth of 10.8%, 9.8% and 10.1%, and Bank of China 6.4%; each was the fastest quarterly growth for that lender since 2021 or 2022, according to Reuters. Analysts credited the repricing of higher-cost deposits that began early this year, a benefit they said is fading in the second half.

What to watch next

The first daily overnight operations are due Monday, Nov. 2. Market watchers will look at whether the PBOC publishes the overnight rate as a formal policy rate, how the loan prime rate is priced against it, and whether the seven-day rate fades from view. For more on the global economic picture this week, see TBR’s coverage of U.S. third-quarter GDP growth of 3.4% and the Oct. 30 Business Report.

Sources

• Reuters (via MarketScreener): China’s central bank steps up shift toward overnight rate as policy anchor, Oct. 30, 2026
• National Bureau of Statistics of China: Preliminary Accounting Results of GDP for the Third Quarter of 2026
• Reuters (via Investing.com): ICBC posts 10% Q3 profit rise
• Reuters (via The Standard): China’s big banks post fastest quarterly profit growth in years
• Euronews/AP: China’s economy grows 4.5% on robust exports

Additional sources

• CGTN (Chinese state media): China signals moderately loose policy
• 21st Century Business Herald (Chinese): report on the PBOC notice