China: PBOC Signals Shift to Overnight Policy Rate and Broader Interest Rate Benchmark Reforms

At the Financial Street Forum on October 19, PBOC Governor Pan Gongsheng outlined further reforms to China's monetary policy framework, including a potential shift in the main policy rate from the 7-day reverse repo rate to the overnight reverse repo rate, greater use of DR001 as a benchmark for loan pricing, and the eventual retirement of legacy benchmark deposit and lending rates. The governor also announced five measures aimed at strengthening financial stability, improving bond market functioning, facilitating financial opening-up, and supporting technological innovation. We view these announcements as further steps towards a more price-based monetary policy framework and more effective monetary policy transmission. The potential shift to an overnight policy rate could effectively amount to a policy rate cut, depending on the level at which the new rate is set. However, given stronger-than-expected Q3 GDP growth and recently announced monetary easing measures, we maintain our basel