China announced the level of its new key rate after keeping it secret for four months, setting it below the old benchmark as the central bank takes the final steps towards making the overnight rate its main policy lever.

The rate on the overnight reverse repurchase agreements is 1.25%, compared with 1.4% on the current seven-day benchmark, according to a statement from the People’s Bank of China (PBOC). While the PBOC hasn’t previously made public the rate at which overnight reverse repos were conducted, it was set at 1.25% during the first such operation in June, Bloomberg News reported at the time.

The central bank will start to conduct overnight reverse repo operations every day, and switch the seven-day reverse repo transactions to multiple rates from a single fixed one, according to the statement.

China’s 10-year government bond yield slipped to 1.63% from 1.64% just before the decision.

The timing of the announcement caught many analysts by surprise. Economists at banks including Societe Generale SA previously predicted the switch could take months, since the PBOC will likely need to gradually increase the frequency of its overnight liquidity operations.

“While this move is well telegraphed, the timing is a bit earlier than expected,” said Xiaojia Zhi, the head of an economist at Credit Agricole CIB.

“The PBOC could consider the switch now to help deliver lower short-end rates in the money markets,” Zhi added, possibly to dispel market unease over reports of state-owned developer Zhuhai Huafa Group Co’s missing payments on trust products.

Some investors see the transition as de facto easing, since the 1.25% rate was lower than expected when it was first adopted in late June. But the PBOC has refrained from associating the shift with looser policy, potentially out of concern that such interpretation may lead to frenzied buying in the Chinese government bond market.

“Although not a conventional 15 basis-point policy rate cut, the transition effectively increases interbank liquidity and lowers yields across the bond curve, all else equal,” Goldman Sachs Group Inc economists led by Andrew Tilton wrote in a note.

While a further policy rate cut “looks unlikely in the near term”, they said that “evolving domestic credit risk could increase the likelihood” of a reduction in lenders’ required reserves. And “to contain risk spillovers”, the PBOC may also opt to use its new instrument designed to help non-bank financial firms manage liquidity stress during bond sell-offs, according to Goldman’s economists.

Earlier in October, the PBOC gave the clearest signal yet of plans to revamp its toolkit by moving from the seven-day reverse repo rate to the overnight one. The change is part of a decades-long effort to reform China’s interest-rate system from a centrally planned framework, and better align the PBOC with other major central banks.

The frequency of the seven-day reverse repo programme will also be reduced, with such operations conducted only during stretches like tax payment times and end of month periods, according to the latest statement.

Other tools that used to be based on the old benchmark will be linked to the overnight rate going forward, the PBOC said.

The sooner-than-expected announcement could be “a good strategy to get any further speculation out of the way”, according to Frances Cheung, the head of rate strategy at Oversea-Chinese Banking Corp (OCBC).

“Given that there will be overnight reverse repo operations daily, market participants will be comfortable relying on the overnight liquidity with rollovers, even if the liquidity demand is for a multi-day period,” she said. “Effectively, this would lower the funding costs.”