A Short Insight of the Pboc's Concretionary Monetary Policy

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A short insight of the PBOC’s Concretionary Monetary Policy 03 – 20 - 2011

As part of the China’s Monetary Policy team, most contributions were made on a shared basis with Ms. Fion Lau focusing on current policy implemented and tools used by the People’s Bank of China (PBOC) Benefited by Fion’s financial industry experience and access to various source including Bloomberg terminal, the data obtained is well collected and analyzed. Similar to that of the Federal Reserve, China’s monetary policy are designed and implemented under the dual mandates, maintaining stable exchange rate while promoting economic growth. The core uniqueness is the underlying control by the state council. It is with strong belief that there is a significant benefit of such conservative system, considering its prematurity in the global economy and the relative under educated and under development of the country. The tools used by the PBOC to control liquidity are largely similar to those used by other central banks; however, there are individualities to them. The PBOC uses tools such as OMO, RRR, Window guidance and Administrative Measures. Distinctive features presents in each area.

Window guidance is unique to China, where the central government set directives to the sector development focus, stimulating the growth of certain industries. The most recent update on 23rd of February 2011, the PBOC increased credit line for Agriculture related lending by 10 billion Chinese Yuan is one policy to act against the effect from drought, is one of the guidance set forth by the PBOC. The downturn of window guidance is that large sum of loans were approved to those state owned inefficient or ineffective companies, result in an increase in Non-Performing Loan (NPL) while many effective corporation suffered from lack of funds. I strongly believe that the Chinese government has introduced window guidance of deep benefit to the fast development of China for the appropriate period; certainly, this is...
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