Caixin Explains: Why and How China’s Overhauling Monetary Policy (Part 3)

In the final part of this three-part series, we explain why the PBOC restarted trading government bonds in the secondary market and how that can help monetary policy management

In the final part of our three-part series on the PBOC’s proposed new framework, Caixin explains the central bank’s new policy to trade government bonds in the secondary market.

China’s central bank has started 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.

In the final part of our three-part series on the PBOC’s proposed new framework, Caixin explains the central bank’s new policy to trade government bonds in the secondary market and how that can help manage liquidity and interest rates.

To read part one, which explains the reasons behind the overhaul, click here.

For part two, which explains the changes in the interest rate system, click here.

Why did the PBOC restart trading government bonds in the secondary market?

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