China's Central Bank Conducts Overnight Operations With Daily Cap of 1 Trillion Yuan
Key Facts
The People's Bank of China is conducting overnight reverse repo operations from 21 October, with a daily cap of 1 trillion yuan, according to an operations schedule reported by Newsquawk. The move coincides with the central bank's consideration of switching its main policy rate to the overnight reverse repo rate, according to Reuters. The proposed shift aims to improve monetary policy transmission to the economy by adopting the rate on these operations as the main benchmark. The scheduled operations will be conducted through fixed-rate quantity tenders, under the terms reported by Newsquawk. The 1 trillion yuan figure represents the daily cap set for these operations within the specified implementation window.
The operations programme followed China's October decision to keep the one-year loan prime rate at 3.00%, according to Reuters. The five-year loan prime rate also remained unchanged at 3.50%, leaving lending rates steady for both maturities. The decision matched the expectations of all respondents in a Reuters poll conducted before the announcement, with all forecasting that both rates would remain at their existing levels. On economic activity, stronger growth in the third quarter was underpinned by robust exports, according to the agency's description of China's economic performance. Export support contrasted with continued consumer caution over spending, allowing external demand to offset consumers' reluctance to open their wallets.
The central bank previously conducted its first overnight reverse repo operation as part of its open market operations in June, according to Reuters. It offered financial institutions 300 billion yuan in that operation, marking the start of its use of the tool. Under the shift being considered, the overnight operations rate would become the main monetary policy signal, according to an explanation published by Caixin. That rate would guide the overnight repo rate traded in the market, linking the central bank's signal to the market rate, according to the same explanation. Governor Pan Gongsheng said implementing the shift to overnight operations would be considered "at an appropriate time", Caixin reported.
In the foreign exchange market, the existing system allows the onshore yuan to move by 2% on either side of the reference rate each day, according to an explanation published by Reuters in September. The permitted trading band extends above and below the midpoint set daily, under the rule cited by the agency. On companies' management of currency volatility, Reuters cited sources in another September report describing guidance from China's foreign exchange regulator to banks. The regulator asked banks to encourage more corporate clients to hedge currency risks. The guidance aims to broaden companies' participation in hedging through the banks they use, according to the sources cited by the agency.
In trading on Tuesday, 20 October, the dollar held steady at 6.6811 yuan in the offshore market, according to Reuters, after Chinese interest rates were left unchanged. The exchange rate's stability in that session followed the lending rate decision, which matched expectations among respondents to the agency's poll. In the observation dated 16 October, Federal Reserve Bank of St. Louis data recorded an exchange rate of 6.6861 yuan per dollar. The rate in the previous observation, dated 15 October, was 6.6909 yuan per dollar, according to the same data series. The decline in the number of yuan needed to buy a dollar reflected an appreciation of the Chinese currency between the two observations.
The overnight reverse repo operations window runs until 2 November, according to the schedule from China's central bank reported by Newsquawk. From 21 October until that date, the operations are subject to the fixed-rate quantity tender mechanism and the specified daily cap. On the foreign exchange release calendar, the next update to the Federal Reserve Bank of St. Louis yuan exchange rate series is due on 26 October 2026. That date is part of the institution's statistical exchange rate releases, according to the schedule listed on the series page. The forthcoming exchange rate data release falls before the end of the Chinese central bank's operations window, scheduled to run until 2 November.