Pan Gongsheng: Research and reserve policy tools to address macroeconomic and financial market fluctuations, and continue to rectify “involuted” competition and capital idling in the financial sector.

Pan Gongsheng: Research and reserve policy tools to address macroeconomic and financial market fluctuations, and continue to rectify “involuted” competition and capital idling in the financial sector.

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A signed article by Pan Gongsheng, Governor of the People’s Bank of China, titled “Building a Scientific and Robust Monetary Policy System and a Comprehensive Macroprudential Management System,” was published in the recently released “Study Guide to the.”

Continuously Enhance the Role of Central Bank Policy Rates and Narrow the Width of the Short-term Interest Rate Corridor

In the article, Pan Gongsheng pointed out the importance of improving the market-based rate formation, regulation, and transmission mechanism. Continuously enhance the role of central bank policy rates, narrow the width of the short-term interest rate corridor, and further smooth the transmission from central bank policy rates to market benchmark rates, and then to various financial market rates. Improve the benchmark for loan rate pricing, enhance the quality of loan prime rate (LPR) quotations, and more accurately reflect loan market interest rate levels.

Continuously Optimize Intermediate Variables of Monetary Policy, Use Broad Financial Aggregates More as Observational, Reference, and Expectational Indicators

Pan Gongsheng noted in the article to optimize the base money issuance mechanism and the intermediate variables of monetary policy, and maintain a reasonable growth of the financial aggregate. Gradually build a short-, medium-, and long-term matching base money supply mechanism with Chinese characteristics, maintain abundant liquidity in the banking system, and fully meet the effective financing needs of the real economy. Continuously optimize the intermediate variables of monetary policy, reduce focus on quantitative targets, use financial aggregates more as observational, reference, and expectational indicators to create conditions for greater use of interest rate regulation.

Continuously Rectify “Involuted” Competition and Idle Capital in the Financial Industry

Pan Gongsheng stated in the article to continuously smooth the monetary policy transmission mechanism. Strengthen the assessment of monetary policy implementation, guide financial institutions to improve the transmission efficiency of monetary policy, especially interest rate policy, and continuously rectify “involuted” competition and idle capital in the financial industry. Further strengthen the coordination of monetary policy with fiscal, industrial, and other policies in demand management and structural adjustment.

Research and Reserve Policy Tools to Respond to Macroeconomic and Financial Market Volatility

Pan Gongsheng pointed out that, globally, macroprudential policy tools have become quite rich and are still developing rapidly. Based on the assessment results of the macroprudential monitoring and analysis framework, continue to enrich and enhance the toolbox of policies for systemically important financial institutions, broad credit, real estate finance, cross-border capital flows, etc.; research and reserve policy tools to respond to macroeconomic and financial market fluctuations; establish mechanisms for the creation, implementation, evaluation, feedback, and optimization of these tools to make them more standardized and regulated.

Adhere to the Decisive Role of the Market in Exchange Rate Formation and Resolutely Prevent Exchange Rate Overshooting Risks

Pan Gongsheng stated the need to continuously improve the RMB exchange rate formation mechanism. As China is a large open economy, it is necessary to adhere to the decisive role of the market in exchange rate formation, maintain exchange rate flexibility, give full play to the exchange rate’s role as a macroeconomic and international balance of payments automatic stabilizer, and create favorable conditions for independent and effective monetary policy. At the same time, uphold bottom-line thinking, strengthen expectation guidance, and resolutely prevent the risk of exchange rate overshooting.

Timely Correct and Block Market “Herd Effect” to Promote a Positive Cycle between the Real Economy and Financial Markets

Pan Gongsheng underlined the need to implement comprehensive risk prevention measures in key areas. For economic operations, prevent significant fluctuations in key areas and industries that could affect the process of high-quality economic and financial development.

For key financial institutions, strengthen additional supervision around enhancing loss absorption capacity and risk response capability, and improve early identification and warning of risks. For cross-border capital flows, take timely counter-cyclical measures as needed to maintain overall stability. For financial markets, promptly correct and block market “herd effects” to promote a positive cycle between the real economy and financial markets. For the real estate market, strengthen macroprudential management of real estate finance, promote stable and healthy development of the real estate market, and help build a new model for real estate development. For internet finance, maintain the balance between risk prevention and innovation, and promote its overall sound operation.

Continuously updating...

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