China Shifts Its Policy-Rate Anchor to Overnight Funding at 1.25%

China has launched daily overnight reverse repos at 1.25%, changing its monetary-policy anchor. The first operation supplied 541 billion yuan, alongside a net withdrawal after maturities.

Editorial Staff

November 2, 2026

2–3 minutes

Banking, China, Financial Markets, Interest Rates, Liquidity, Monetary policy, PBOC

Daily overnight operations begin under a redesigned framework, while the opening liquidity figures show why gross lending and the net cash position must be read separately.

The Beijing skyline beneath an orange sunset. — Beijing at sunset, shown as contextual imagery for China’s monetary-policy changes. Photograph: ran liwen / Unsplash.

China began a new phase of monetary-policy operations on 2 November, placing daily overnight reverse repurchase agreements at the centre of its short-term interest-rate framework. The People’s Bank of China’s 30 October announcement, reproduced by Eastmoney, set the operating rate at 1.25% and changed how other short-term facilities are priced.

The reform changes the reference point through which the central bank guides money-market conditions. Its significance lies in the operating framework as well as the opening rate: a daily overnight instrument gives banks a regular signal about the price of very short-term funding.

What changes in the operating framework

Under the announcement, overnight tenders take place each working day at a fixed interest rate, with institutions bidding for quantities. Seven-day reverse repos move to a different format, using a fixed quantity and interest-rate bidding with multiple successful rates. Those operations will mainly serve periods such as tax-payment dates and month-ends.

Other facilities previously priced at a spread over the seven-day reverse repo rate will instead use the overnight rate as their reference, with the spreads unchanged. This makes the switch more extensive than simply adding another daily operation: it moves the common reference used across several instruments.

The opening operation is not the net cash change

Bloomberg reported an opening overnight operation of 541 billion yuan at 1.25%. Its calculation, after allowing for maturing reverse repos, showed a net withdrawal of 515 billion yuan from the banking system that day.

These figures answer different questions. The gross operation measures new funding supplied through the instrument. The net figure also includes money falling due for repayment. Describing the opening operation as though it added 541 billion yuan to the system overall would therefore miss the effect of maturities.

The distinction also helps separate the price of liquidity from its quantity. A central bank can change how it steers funding costs while allowing the outstanding volume of its operations to fall. A single day’s gross allotment cannot establish the direction of the entire policy stance.

Easier funding, with transmission still to be tested

Reuters reported that analysts saw the change as lowering the framework’s floor by 15 basis points and potentially easing financial institutions’ funding costs. Their interpretations differed over its implications for wider monetary stimulus; it was not presented as a conventional policy-rate cut.

The economic effect will depend on how the new reference flows into actual market rates and financing conditions. A change in banks’ short-term funding costs does not guarantee an equivalent move in every household or corporate borrowing rate. Credit decisions also depend on the risks lenders are willing to take and the demand they face.

For the coming sessions, the useful measures are the overnight market’s behaviour around the new reference and the pattern of operations across maturities. Monday establishes the framework. Repeated trading and lending decisions will show how effectively it transmits policy into the wider economy.