The central bank will introduce a new overnight reverse repo operation variety at the end of June. On June 25, the People's Bank of China announced that, in order to better match the banking system's short-term liquidity needs, it will add an overnight reverse repo operation variety to its open market operations on June 29 and June 30. This overnight reverse repo operation will utilize a fixed interest rate and quantity bidding method.

On June 17, at the 2026 Lujiazui Forum, PBOC Governor Pan Gongsheng announced explorations and optimizations to the interest rate adjustment mechanism. One aspect involves improving the usage mechanism of the temporary overnight repo/reverse repo facility established in July 2024, adjusting its operation rate to the 7-day reverse repo operation rate plus or minus 25 basis points, thereby narrowing the corridor from 70 basis points to 50 basis points. Another aspect is to further enrich the open market operation toolkit by timely adding an overnight reverse repo operation variety to better match the banking system's short-term liquidity needs.

BOC Securities points out that adding an overnight reverse repo operation variety is expected to fill the maturity gap in China's liquidity adjustment tools, enabling a gradual and precise targeting of daily funding tightness in the interbank market. This move may better coordinate with the interest rate corridor formed by the operation rates of the temporary overnight repo/reverse repo facility.

Southwest Securities notes that the addition of the overnight variety is currently likely positioned as a supplement to the 7-day reverse repo, with the latter's status as the policy rate anchor remaining unchanged. After adding the overnight variety, the central bank will have greater flexibility to address temporary liquidity needs at month-end, quarter-end, and similar time points.

Huaxi Securities believes that, in the short term, the overall overnight rate center is highly likely to converge within the 1.30%-1.40% range, playing a role in guiding the market's funding rate center downward. In the long run, whether the entire monetary policy interest rate system can shift to using the overnight rate as the core pricing benchmark depends on the structure of the central bank's liquidity injections. If the PBOC increases the frequency and scale of its overnight reverse repo operations, short-term market rates may gradually use the overnight policy rate as the pricing benchmark, potentially transforming the interest rate adjustment system into a framework dominated by the overnight rate, similar to the current framework used by the Federal Reserve. If the overnight reverse repo is only activated at specific times, the current system centered on the 7-day reverse repo rate may continue, with the overnight reverse repo merely serving to stabilize the short-term funding rate center.