The International Monetary Fund said that the Chinese central bank should be granted independent control over interest rates, as well as make monetary policy its exclusive focus.
In its latest annual report the IMF pointed to significant progress in efforts to make China’s monetary regime more market-oriented, with the large-scale removal of restrictions on credit extension as well as lending and deposit rates.
It notes, however, that China has increased its control over the exchange rate for the yuan as well as capital flows, and advised that policy-makers should resume the course of market-oriented reforms.
With respect to capital account liberalisation the IMF advocates greater prudence, stating that China should only give consideration to carefully selected reforms in the short-term.
The IMF also called for the central bank to give the People’s Bank of China “operational independence” when it comes to setting interest rates, and make monetary policy its exclusive remit.
This would in turn lead to a separation between monetary policy and macro prudential policy, as is standard practice in most advanced economies due to concerns over elected political leaders seeking to influence the operations of central banks.