Chinese Central Bank Flags Focus on Stability, Moderate Expansion in Money Supply to Support “High Quality Growth”

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The People’s Bank of China (PBOC) has flagged moderate growth in the Chinese money supply as part of efforts to improve the quality of the country’s economic development.

On 11 May PBOC released its “2021 First Quarter Monetary Policy Execution Report” (2021年第一季度货币政策执行报告) stating that monetary policy had “focused on the term ‘stability’ since the start of this year,” as well as “embodied forwardness, activeness, targetedness and effectiveness, and stabilised the vigour of support for the real economy.”

PBOC said that in the near-term it would continue to “focus on the term stability,” as well as “use moderate monetary increase to support high-quality economic growth,” with key points including:

  • Maintaining rational growth in the scale of monetary credit and total social financing;
  • Improving mechanisms for the prevention of bond default risk and mechanisms for handling;
  • Firmly striking against absconding from debt;
  • Researching and unveiling central bank tools to support carbon emission reductions.

In the report’s “special column” (专栏), PBOC called for the market to focus more on trends in the short-term interest rates of its open market operations (OMO), as opposed to their volume.

“When observing the central bank’s open market operations, the market should focus in particular upon policy rates including rates for open market operations and rates for medium-term lending facilities (MLF), as well as the state of the market’s benchmark rates for a given period.

“It should not excessively focus on the volume of the central bank’s [open market] operations, and avoid excessive interpretation of monetary policy.”

The Report said that PBOC has recently formed the “habit” of engaging in OMO (reverse repo operations) on a daily basis at a rate of 2.2%, while waiting until the middle of each month to undertake medium-term lending facilities (MLF).

PBOC uses these means to send signals on central bank policy rates and guide movements in market rates, in order to increase the efficiency of monetary policy transmission.

PBOC focuses heavily on short-term rates such as DR007 in its open market operations, and engages in “comprehensive consideration of cash injections and withdrawals, fiscal receipts and expenditures as well as market demand in order to flexibly adjust the scale and tenors of open market operations.”

The Executive Report points to PBOC’s use of multiple methods in the first quarter to strengthen communications with the public, and further raise the targetedness and efficiency of monetary policy.

Interest rates for loans remain comparatively low according to data from the report. The weighted average interest rate for enterprise loans in China stood at 4.63% in March, for a decline of 0.9 percentage points compared to the same period last year.

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