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China central bank to use more open-market operation
By Tao Dong |
November 8, 2012, Thursday
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Print Edition
Print Edition
THE People's Bank of China (PBoC) published the "China Monetary Policy Report" for the third quarter of 2012 last Friday. In its outlook for Chinese economy, the central bank assessed that the fundamentals for stable economic growth has not been affected, and the economy should see a steady and relatively rapid growth pace.
The PBoC also stated that it would place a higher priority on shoring up the economy and continued to implement prudent monetary policy.
While the central bank pledged to keep its monetary stance stable for the coming months, it placed a more significant emphasis on maintaining an appropriate level of liquidity in economy.
In the policy outlook, the PBoC stated that it would continue to use liquidity management processes involving reverse repurchases and reserve requirement ratios to adjust liquidity of the banking system and maintain interest rates at a stable level.
We think this report indicates the relatively constructive view on the Chinese economy held by the PBoC.
Explicitly, the PBoC has changed the description of the economy outlook from "a steady growth pace" in its report for the second quarter, to "a steady and relatively rapid growth pace" in the current report.
Implicitly, the PBoC has maintained the "prudent monetary policy" outlook. We assess that the central bank will continue to use instruments through the open market operation to manage the liquidity level in the economy.
The key difference of the monetary policy conducts between the third quarter and the previous two quarters of the year, in our view, is the frequent use of open market operation instruments, in particular, the reverse repo operation to inject the liquidity into the banking system.
The PBoC made an innovative step to conduct a 28-day reverse repo in September, aiming to extend its liquidity management capability along the curve. The specific section of the latest report was given to the introduction to Shanghai Inter-bank Offer Rate (Shibor), the barometer of liquidity in the economy. Given the consistent signals sent by recent releases from Purchasing Managers' Indexes, to real activity data, as well as trade data.
Together with the observations we made from the PBoC's recent operational behavior, as well as the implications we learnt from the statement, we think that PBoC will continue to use the open market operations as its main monetary policy instrument in the coming months.
The article was adapted from a Credit Suisse research report dated November 5. The opinions expressed are his own.
The PBoC also stated that it would place a higher priority on shoring up the economy and continued to implement prudent monetary policy.
While the central bank pledged to keep its monetary stance stable for the coming months, it placed a more significant emphasis on maintaining an appropriate level of liquidity in economy.
In the policy outlook, the PBoC stated that it would continue to use liquidity management processes involving reverse repurchases and reserve requirement ratios to adjust liquidity of the banking system and maintain interest rates at a stable level.
We think this report indicates the relatively constructive view on the Chinese economy held by the PBoC.
Explicitly, the PBoC has changed the description of the economy outlook from "a steady growth pace" in its report for the second quarter, to "a steady and relatively rapid growth pace" in the current report.
Implicitly, the PBoC has maintained the "prudent monetary policy" outlook. We assess that the central bank will continue to use instruments through the open market operation to manage the liquidity level in the economy.
The key difference of the monetary policy conducts between the third quarter and the previous two quarters of the year, in our view, is the frequent use of open market operation instruments, in particular, the reverse repo operation to inject the liquidity into the banking system.
The PBoC made an innovative step to conduct a 28-day reverse repo in September, aiming to extend its liquidity management capability along the curve. The specific section of the latest report was given to the introduction to Shanghai Inter-bank Offer Rate (Shibor), the barometer of liquidity in the economy. Given the consistent signals sent by recent releases from Purchasing Managers' Indexes, to real activity data, as well as trade data.
Together with the observations we made from the PBoC's recent operational behavior, as well as the implications we learnt from the statement, we think that PBoC will continue to use the open market operations as its main monetary policy instrument in the coming months.
The article was adapted from a Credit Suisse research report dated November 5. The opinions expressed are his own.
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