PBOC’s Lu Lei: Central Bank to Refine Reserve Requirement System, Conduct More Flexible Open Market Operations

The emphasis on refining the reserve requirement system alongside more flexible open market operations signals a continued shift toward price-based liquidity management rather than blunt quantity tools. The explicit aim of anchoring short-end money market rates around the policy rate matters most for institutions that fund in the interbank market, since steadier front-end rates feed directly into short-term funding costs and, eventually, into the pricing of rate-sensitive assets. Whether that transmission actually tightens — and whether the deposit reserve framework changes in a way that alters bank liquidity buffers — is the open question to watch.