Caixin Global China Watch

Caixin Global China Watch

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Caixin Global China Watch
Caixin Global China Watch
Caixin Explains: Why and How China’s Overhauling Monetary Policy (Part 1)

Caixin Explains: Why and How China’s Overhauling Monetary Policy (Part 1)

In part one of this three-part series, we explain why the PBOC is moving away from quantitative targets to a policy framework driven by interest rates

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Caixin Global
Aug 01, 2024
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Caixin Global China Watch
Caixin Global China Watch
Caixin Explains: Why and How China’s Overhauling Monetary Policy (Part 1)
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China’s central bank is starting a major overhaul of how it manages monetary policy as the country adapts to slowing growth and the changing structure of the economy.

The new framework, which brings the People’s Bank of China (PBOC) more into line with its peers in other major economies including the U.S. and European Union, was flagged by Governor Pan Gongsheng in a speech in June. He also pledged to improve communication with the markets to enhance transparency and guide expectations about the direction of policy.

Pan outlined three key changes — a further shift away from quantitative targets such as total social financing (TSF) and M2 money supply, with a greater focus on interest rates; refining the interest rate system that currently has many policy rates, which may lead to the adoption of just one main policy rate; and trading government bonds in the secondary market to give the PBOC another instrument in its policy toolkit to manage liquidity.

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