The People's Bank of China released its second-quarter monetary policy report for 2026 on August 12, which included a special section detailing international experiences in short-term rate regulation and the progress of China's ongoing reforms to improve its short-term rate control mechanism.

Industry experts indicated that the central bank will continue to advance reforms to its monetary policy operational framework, ensuring ample liquidity. They anticipate that short-term money market interest rates will likely remain stable, and the transmission mechanism from policy rates to market rates will become further streamlined.

Experts noted that regulating short-term money market rates is a common practice among major global central banks. While central banks in leading developed economies target short-term money market rates, there are slight differences in their choice of policy rates and regulatory approaches. For example, the Federal Reserve uses the representative money market rate (the effective federal funds rate) as its policy rate, which also serves as its target rate. In contrast, the European Central Bank employs a tool-based operational rate (the overnight deposit facility rate, or DF) as its main policy rate, though its implied target remains the overnight market rate.

"In recent years, as China's monetary policy framework has shifted toward greater reliance on price-based controls, the pace of reforms to bolster the short-term rate regulation structure has notably accelerated," the expert explained. The central bank has introduced a series of measures, including clarifying that the 7-day reverse repurchase agreement (reverse repo) rate is the primary policy rate, gradually shifting the target rate toward overnight money market rates, adding reverse repo tools with varying maturities, and establishing temporary overnight reverse repo and repo facilities to serve as a corridor for interest rates.

The expert further stated that during the Lujiazui Forum in June of this year, the central bank announced two policy measures: optimizing the usage mechanism of temporary reverse repo and repo tools, and adding an overnight reverse repo operation type. These steps are designed to enhance the precision and effectiveness of the central bank's liquidity management and short-term rate regulation. The market has responded positively, and over the past two years, China's overnight money market rate (DR001) has remained within the temporary reverse repo and repo rate corridor.