Reforms in China’s Monetary Policy Reforms in China’s Monetary
VII. Choice of Current Monetary Policy Operation
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| VII. Choice of Current Monetary Policy Operation
Framework in China Currently, the PBC is facing dual liquidity surpluses, namely, structural liquid- ity surplus and exogenous shock liquidity surplus. To withdraw liquidity, R0 R0 Rs2 Reserves Supply Rs1 r2 r r1 R Figure 1.7 Diagram of money market interest rate determination under the pay- ment of interest on excess reserves. 66 ● Reforms in China’s Monetary Policy based on the monetary policy operation framework analyzed above, among the three operation methods—asset sales, increase of the required reserve ratio, and central bank bond issuance—the third one is the better choice. In China, issuing central bank bonds offers two obvious additional advantages: (i) since Consumer Price Index (CPI) has remained at a low level for a long time, there is limited scope for market interest rates to rise, and interest rates will not be pushed up dramatically by issuing a large amount of central bank bonds. The main reason why some developing countries fail to hedge by issuing central bank bonds is that against the background of loose liquidity there is severe inflation and interest rates rise, which push up the interest rate of central bank bonds at issuance. Because the payment of interest on central bank bonds leads to an injection of liquidity, large-scale interest payments have forced the central bank to issue new central bank bonds to offset inter- est costs, thus making it difficult to continue with hedge operations. In light of the current CPI in China, interest rates will not rise dramatically. As a result, there will not be a big problem about interests on central bank bonds. (ii) Since China’s bond market will experience a supply shortage for a long time, especially for short-term money market instruments, the central bank 1.80 1.90 2.00 2.10 2.20 2.30 2.40 2.50 2.60 2.70 2000/1/1 2000/3/1 2000/5/1 2000/7/1 2000/9/1 2000/11/1 2001/1/1 2001/3/1 2001/5/1 2001/7/1 2001/9/1 2001/11/1 2002/1/1 2002/3/1 2002/5/1 2002/7/1 2002/9/1 2002/11/1 2003/1/1 2003/3/1 2003/5/1 2003/7/1 August 1, 2000 The PBC began repos. June 25, 2002 The PBC began repos. February 11, 2003 The PBC began repos. January 2002 The PBC lowered the required reserve interest rate to 1.89% from 2.07% 7-day interbank bond repo interest rate (%) 7-day interbank lending rate （%） tải về 1.53 Mb. Chia sẻ với bạn bè của bạn:
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