FX.co ★ PBoC Moves to Strengthen Rate Framework

The People's Bank of China (PBOC) announced on Wednesday a series of measures to refine its short-term interest rate framework, signaling a potential shift toward using the overnight policy rate as its primary benchmark in place of the current seven-day reverse repo rate. Governor Pan Gongsheng said the central bank will narrow the interest rate corridor for its temporary overnight repo and reverse repo facilities and increase the use of overnight reverse repo operations. He added that the PBOC is also developing tools to provide emergency liquidity to non-bank financial institutions during periods of market stress. In parallel, Chinese authorities introduced new steps to promote the international use of the yuan, including a repo facility that allows foreign monetary authorities and sovereign wealth funds to obtain yuan liquidity using bonds as collateral, as well as a pilot program for offshore yuan foreign exchange trading in the Shanghai Free Trade Zone.