In remarks at the Financial Street Forum, the People’s Bank of China outlined forthcoming measures to address liquidity risks, broaden access to central bank funding and deepen financial market access. It also discussed further reforms to monetary policy implementation, including a possible shift from seven-day to overnight operations as the main policy instrument and greater use of market interest rates in loan pricing. A planned liquidity support tool, developed with the National Financial Regulatory Administration and the China Securities Regulatory Commission, would address large redemptions at nonbank institutions. It would activate when collective liquidity stress at asset managers creates a cycle of redemptions and bond sales. Eligible institutions would include bank wealth management subsidiaries, public fund managers and their corresponding bank or securities parent companies. Transactions with the central bank would require compliance with macroprudential requirements and high-grade collateral to limit moral hazard and pricing distortions. Separately, the standing lending facility would expand to locally incorporated foreign banks, with the same operating arrangements clarified for nationwide banks, extending coverage to all domestic deposit-taking financial institutions. On monetary policy, the central bank will study an appropriate time to make overnight operations its principal open market instrument, with the overnight repo operation rate becoming the main policy rate. The interbank overnight repo rate, DR001, already effectively serves as its operational target. Planned guidance would support more diverse floating-rate loan benchmarks, while the loan prime rate would retain a role for small businesses and individuals. Remaining judicial uses of legacy benchmark deposit and lending rates would shift to market rates, enabling their retirement. Other forthcoming measures include connecting interbank and exchange bond markets after testing and piloting proprietary trading in the domestic interbank foreign exchange market by eight Chinese and foreign offshore renminbi clearing banks. Foreign renminbi clearing banks would also become eligible for the central bank repo facility established in June 2026.
People’s Bank of China outlines nonbank liquidity backstop and potential shift to an overnight policy rate
The People’s Bank of China outlined a planned liquidity backstop for nonbank redemption stress, subject to macroprudential requirements and high-grade collateral, and broader standing lending facility access for domestic deposit-taking institutions. In Financial Street Forum remarks, it also discussed a potential shift to an overnight policy rate and more diverse loan pricing benchmarks. Additional plans cover bond market connectivity and expanded domestic foreign exchange market access for eight offshore renminbi clearing banks.