Pan Gongsheng announces new PBOC policy measures
PBOC Governor Pan Gongsheng announced several new policy measures at the 2026 Lujiazui Forum. These include an optimized short-term interest rate framework and a new RMB repo facility for central banks.
Optimizing rate framework and liquidity tools
The People's Bank of China (PBOC) will further optimize its short-term interest rate operational framework.
This includes clarifying the 7-day reverse repo rate as the key policy rate and narrowing the interest rate corridor from 70 basis points (bps) to 50 bps.
The interest rate on the ad hoc overnight repo/reverse repo facility, launched in July 2024, will be set at the 7-day reverse repo rate plus or minus 25 bps.
Additionally, the PBOC plans to diversify its open market operations toolkit by adding overnight reverse repo when necessary to better match the short-term liquidity demand of the banking system.
These adjustments aim to enhance the precision and effectiveness of short-term rate adjustments and promote a price-based monetary policy approach.
The PBOC will also create a RMB repo facility for central banks, international financial organizations, and sovereign wealth funds, allowing them to obtain RMB liquidity against high-grade Chinese government bonds.
Expanding offshore finance and market oversight
To promote the two-way opening-up of the foreign exchange (FX) market, the PBOC will launch a pilot for offshore RMB/FX trading in the Shanghai Pilot Free Trade Zone.
Major Chinese banks, including ICBC, ABC, BOC, CCB, BOCOM, and China CITIC Bank, are authorized to conduct these trades via the China Foreign Exchange Trade System (CFETS) platform.
Furthermore, the PBOC is exploring a contingent liquidity backstop for non-bank financial institutions (NBFIs) as a macroprudential tool to be used under systemic market stress.
This facility, designed to prevent moral hazard, will require NBFIs to meet macroprudential requirements and provide high-grade securities as collateral.
The PBOC, in collaboration with the Shanghai municipal government, will also roll out an Action Plan for Developing Offshore Finance in the Shanghai International Financial Center, focusing on institutional systems, risk management, and prudently developing offshore bonds and services.
The Interbank Market Data Repository has officially launched to enhance look-through monitoring of financial markets, and the Shanghai E-CNY International Operation Center is now operational.
Rebalancing China's financial engine
China's financial structure is undergoing a profound shift from a bank-centric, indirect financing model to one with increased direct financing via bonds and equity.
This evolution reflects the economy's pivot from rapid growth to high-quality development, reducing reliance on credit-intensive sectors like real estate and infrastructure.
While this structural optimization is crucial for supporting technological innovation and new growth drivers, it necessitates a careful adaptation of the financial system to new risk features and diverse funding needs across enterprise stages.