More to print out & stick to the fridge - a quick guide to PBOC policy tools

Author: Eamonn Sheridan | Category: Central Banks

The People's Bank of China the benchmark rate and Reserve-Requirement Ratio (RRR) are the two big gun tools used

But there are other, more targeted, tools. Bloomberg have a good explainer up on the tools. In brief (see the link for more detail):

Reserve-Requirement Ratio (RRR)
  • percentage of deposits that banks must set aside as reserves
Benchmark Rates
  • PBOC's one-year lending and deposit rates
  • The basis upon which commercial banks set deposit rates for savers and lending rates for companies and for mortgages
Open-Market Operations (OMO)
  • Most frequently used (I report on these each day M-F)
  • Mainly short-term loans to banks
  • Depending on the size of the funds added and the amounts that mature, the operations can result in either a net injection or withdrawal of cash from the financial system
  • Range from seven days to several years, but it's the 7-, 14- & 28-day contracts that are most commonly used
  • Have an immediate effect on the money market, pushing rates one way or the other
  • Operations are carried out using what are known as reverse-repurchase agreements, where banks use bonds as collateral to borrow funds from the PBOC and agree to return the money at a future date. The central bank also uses repurchase agreements, which drain cash, as well as bill sales in its OMOs.
Medium-term Lending Facility (MLF)
  • three, six and 12 months loans
  • loans to banks
Standing Lending Facility (SLF)
  • Aimed mainly at small- and medium-sized financial institutions
  • Maximum maturity has been kept at one month or below for the past two years
Pledged Supplementary Lending (PSL)
  • Used to fund China's three policy banks (tasked with financing government projects) for investment
  • "Policy banks": Agriculture Development Bank of China, China Development Bank Corp. and the Export-Import Bank of China
Short-term Liquidity Operations (SLO)
  • Maturities of no more than seven days
  • Used to address temporary fluctuations in the money market
  • Supplanted somewhat by the PBOC daily daily open-market operations
Temporary Liquidity Facility (TLF)
  • The newest tool
  • Used just once so far (January 20 2017), when the PBOC provided 28-day funds to some major commercial lenders to help ease a cash crunch before the Lunar New Year holidays
Relending, Rediscounting, "window guidance", X-Repos ... see the link for these.

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