The central bank will use unconventional monetary tools such as re-lending and pledged supplementary lending to maintain relatively loose liquidity, rather than turning to conventional tools including lowering interest rates or the reserve requirement ratio, said Zhu Haibin, chief China economist at JPMorgan Chase & Co.
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The People's Bank of China has developed two or three monetary tools to guide short- and medium-term interest rates via an effective monetary policy transmission mechanism, said PBOC Governor Zhou Xiaochuan on the sidelines of the China-US Strategic and Economic Dialogue in Beijing on July 10.
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Pledged supplementary lending, a lending instrument backed by collateral, is a new monetary tool to guide medium-term interest rates.
"Previously, the PBOC mainly relied on the adjustment of the reserve requirement ratio, re-lending, central bank bills and open market operations to adjust the money supply.
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"Now, with the introduction of PSL, the central bank will tend not to cut the reserve requirement ratio. Instead, it will be able to increase money supply by using this new tool," said Zhu at a media briefing in Beijing.Â
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The central bank will use unconventional monetary tools such as re-lending and pledged supplementary lending to maintain relatively loose liquidity, rather than turning to conventional tools including lowering interest rates or the reserve requirement ratio, said Zhu Haibin, chief China economist at JPMorgan Chase & Co.
