PBOC Governor Pan Gongsheng Proposes Improving Short-Term Interest Rate Control Mechanism at Lujiazui Forum: What Signal Does It Send?

Today, the 2026 Lujiazui Forum opened. At the forum, PBOC Governor Pan Gongsheng proposed two measures to improve the short-term interest rate control mechanism. First, the operating interest rate range of the temporary overnight repo/reverse repo will be narrowed from the previous 70 basis points to a symmetric 50 basis points. Second, the public market overnight reverse repo operation variety will be increased in due course.

"It can be seen that the central bank continues to promote the transformation of the monetary policy framework toward a price-based model, and the transmission from policy interest rates to market interest rates continues to strengthen," authoritative experts told a Cailian Press reporter.

In fact, as early as the 2024 Lujiazui Forum in June, Pan Gongsheng had already proposed some considerations for reforming and improving the monetary policy framework, including clarifying that the operating interest rate of the 7-day reverse repo in the open market is the main policy interest rate, and studying the moderate narrowing of the interest rate corridor width.

Subsequently, in July 2024, the People's Bank of China announced the addition of temporary overnight repo and reverse repo operations, with operating interest rates of 20 basis points below and 50 basis points above the policy rate, respectively. While highlighting the status of the policy interest rate, it also defined a narrower "soft corridor" for market interest rates, gradually reducing the volatility of short-term interest rates.

From the market performance, since the launch of the tool, the overnight interest rate in the money market has always remained within the temporary repo interest rate range, and operations have become more stable.

In recent years, the central bank has repeatedly emphasized benchmarking against international practices. Internationally, other major central banks have, in the process of improving their monetary policy frameworks, also enhanced their control over short-term interest rates by narrowing the interest rate corridor, authoritative experts said. "Narrowing the range of the temporary repo and improving the use mechanism is conducive to better playing the role of the policy interest rate pricing anchor."

"Previously, the upper and lower limits of the PBOC's temporary repo interest rate were +50bp and -20bp, respectively, and the tolerance for short-term interest rate fluctuations was relatively large," the expert said. This year, the overnight interest rate DR001 has basically operated within the range of 20 basis points above and below the policy rate. "The central bank's move to narrow the temporary repo interest rate range also reflects the general principle of seeking progress while maintaining stability."

The expert noted that the central bank this time has also appropriately moved up the operation time of the temporary repo and disclosed the trigger conditions for the tool, namely, that DR001 continues to be below or above the corresponding operating interest rate of the temporary repo, which can better stabilize market expectations.

Meanwhile, the PBOC will, in due course, add the overnight reverse repo operation variety, which is conducive to enhancing the precision and effectiveness of short-term interest rate control.

Industry insiders noted that the main open market operation variety of China's central bank is the 7-day reverse repo, which is similar to that of the European Central Bank and the Bank of England. It can better balance the precision of operations and the pressure of maturity rollover. Over the years of practice, it has also played the role of a market pricing anchor, effectively maintaining the stability of short-term interest rates.

By contrast, the overnight repo/reverse repo operation has a shorter term. At time points such as the end of the month, the temporary liquidity demand of financial institutions increases, and the flexibility of overnight operations is stronger, which can better achieve the goal of "smoothing peaks and filling valleys" in liquidity.