The People's Bank of China examines changes to the main policy interest rate operation method '7-day → next-day'.

(Shanghai = Yonhap News) Correspondent Cha Byeong-seop = The People's Bank of China, China's central bank, is pursuing a plan to change the main policy interest rate from the current 7-day reverse repo rate to the next-day rate.

According to Bloomberg and Reuters on the 20th (local time), the People's Bank of Korea (CEO) Pan Gongsheng announced at an event held in Beijing the previous day that he would consider changing the main means of open market operations to overnight trading at an appropriate time and making the overnight repo rate the main policy interest rate.

China's 7-day reverse repo is a short-term liquidity supply method in which the People's Bank of Korea purchases securities from major financial institutions and sells them back 7 days later, and has functioned as the main policy interest rate since 2024.

Open market operations through overnight trading took place for the first time in late June, and more than 80% of repo transactions in China's interbank money market are overnight trading.

Pan Growth said that the change was an effort to improve the central bank's short-term interest rate control and expected that interest rate control could become more precise.

He explained, “The interbank overnight repo rate has become the de facto target rate of central bank monetary policy. It sensitively reflects short-term liquidity supply and demand and has been more stable in recent years.”

Reuters assessed that this change will give the People's Bank of China more control over the liquidity environment and will also allow it to be more in line with central banks in other countries, such as the United States, which already use the overnight interest rate as their main policy interest rate.

At the same time, he pointed out that this is consistent with changes in China's financial structure, and that there is more new funding through bond and stock issuance than through traditional bank loans.

Some analysts believe that the policy interest rate change will actually lead to a reduction in lending interest rates.

Ji-chang Jang, senior analyst at Huatai Securities, predicted that “changing the benchmark is equivalent to lowering the interest rate standard to 1.25%,” citing the fact that the 7-day reverse repo rate is 1.4%, while the overnight reverse repo rate is 1.25%.

On the other hand, Wang Qing, senior analyst at Dongfang Jincheng International Credit Rating, said that the actual operating interest rate will be announced when the People's Bank of China changes the policy interest rate, and that such a change does not mean an interest rate cut.

Meanwhile, Chairman Pan also said that he plans to announce policy guidance in the future to reform lending interest rates. Through this, the intention is to diversify the benchmark by breaking away from dependence on the Loan Preferential Rate (LPR), which has served as the de facto base interest rate.

He also suggested that financially sound companies will be able to choose between the interbank overnight repo rate and LPR as the variable interest rate standard when making loans in the future.