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China Economics PBoC’s O/N Rate Move Points to a Likely July Cut CITI’S TAKEThe PBoC today reportedly set its inaugural O/N reverse repo rate at 1.25% — 10bps below consensus — while holding the 7D reverse repo ratesteady at 1.40% (Bloomberg, Jun 29th; PBoC, Jun 29th). The asymmetricmove likely signals an easing bias, without a formal cut. A 15bp termpremium between the O/N and 7D rates looks too wide compared withmarket rates. We maintain our out-of-consensus call for a 10bp cut to 7Dreverse repo rate and LPR in 2H26, with risks skewed to an earlier move(see: 26H2 Outlook: AI Supercycle Cuts into the K-shaped Economy). Webelieve ade factoLPR cut on July 20 now looks increasingly likely. Beyondrates, fiscal acceleration — bond issuance, fund deployment, and theRMB800bn facility — is already underway. That said, we do not expect apolicy pivot from the July Politburo meeting. Xiangrong YuAC+852-2501-2754xiangrong.yu@citi.com Xinyu JiAC+852-2501-2792xinyu.ji@citi.com What happened? –The PBoC conducted its first overnight reverse repo operationtoday, disclosing the injection size at RMB300bn but not the rate (PBoC, Jun 29th).Bloomberg (Jun 29th) subsequently reported the O/N reverse repo rate at 1.25% (citingpeople close to the matter) — 10bps below the consensus forecast of 1.35% — likelysignaling an easing bias. The PBoC also conducted an operation at the 7D tenor butkept the 7D reverse repo rate unchanged at 1.40%, in line with expectations. Today’smove follows the PBoC’s earlier tweak on its interest rate corridor (see: Takeawaysfrom Lujiazui Forum). Relatedly, one PBoC monetary policy committee member calledfor rate cuts last week (Bloomberg, Jun 24th). Reuters reported a third consecutivemonth of window guidance to boost loan issuance (Reuters, Jun 26th). What to make of it? –The O/N reverse repo rate is still in the process of beingestablished as a formal policy rate; the current framework remains anchored to the7D reverse repo rate and the LPR, which move in tandem. Today’s move is not anoutright easing, in our view — but it likely opens the door to one. A 15bp term premiumbetween the O/N and 7D rates looks too wide compared with market rates. Wemaintain our out-of-consensus call for a symbolic 10bp policy rate cut in 26H2E,premised on sluggish domestic demand. We believe the risks are skewed towards anearlier move, especially with a likely resolution of the Middle East conflict. Today’sdevelopment lends further support to our view. Ade factoLPR cut as soon as July 20thnow looks more plausible — whether delivered as an outright cut under the currentpricing regime, or via a structural shift toward DR-based LPR pricing. Either way, alower LPR cut would confirm the easing direction. What else to expect? –We believe targeted easing is coming, but a policy pivot is not.Fiscal policy deployment is the key variable and should be set to accelerate —specifically:[1]bond issuance,[2]fund deployment, and[3]RMB800bn policyfinancing tool. The bar for a budget revision remains prohibitively high, in our view, asthe full-year growth target appears within reach despite a Q2 slowdown. The JulyPolitburo meeting may underscore consumption and household income, though wesee limited scope for immediate and material stimulus. © 2026 Citigroup Inc. No redistribution without Citigroup’s written permission.Source: MoF, NBS, NPC, CEIC, Citi Research Source: PBoC, CEIC, Bloomberg, Citi Research If you are visually impaired and would like to speak to a Citi representative regarding the detailsof the graphics in this document, please call USA 1-888-500-5008 (TTY: 711), from outside theUS +1-210-677-3788 Appendix A-1 ANALYST CERTIFICATION The research analysts primarily responsible for the preparation and content of this research report are either (i) designatedby “AC” in the author block or (ii) listed in bold alongside content which is attributable to that analyst. If multiple ACanalysts are designated in the author block, each analyst is certifying with respect to the entire research report other than(a) content attributable to another AC certifying analyst listed in bold alongside the content and (b) views expressed solelywith respect to a specific issuer which are attributable to another AC certifying analyst identified in the price charts orrating history tables for that issuer shown below. Each of these analysts certify, with respect to the sections of the reportfor which they are responsible: (1) that the views expressed therein accurately reflect their personal views about eachissuer and security referenced and were prepared in an independent manner, including with respect to Citigroup GlobalMarkets Inc. and its affiliates; and (2) no part of the research analyst's compensation was, is, or will be, directly orindirectly, related to the specific recommendations or views expressed by that research analyst in this report. IMPORTANT DISCLOSURES Citigroup Global Markets Inc. or its affiliates has received compens