(Yicai) Oct. 11 -- The recent formation of a joint working group by the People’s Bank of China and the Ministry of Finance will serve as a co-ordination mechanism between monetary and fiscal policies, improve synergy between the two authorities and enhance the consistency of macroeconomic policies, industry insiders said.

The PBOC and the Ministry of Finance have set up a joint working group that will mainly focus on the smooth operation of the bond market and the PBOC’s open market trading of treasury bonds, the central bank said yesterday.

The group recently held its first meeting at which the two sides agreed to work closely on the trading of central bank bonds and exchanged views on the operation of the bond market. It was agreed that the PBOC’s treasury bond trading is an important means to enrich the monetary policy toolbox and strengthen liquidity management.

The two sides will also coordinate development and security, strengthen policy coordination, continuously optimize mechanisms, and maintain the stable development of the bond market in a standardized manner to provide a suitable market environment for the PBOC’s treasury bond trading operations, the PBOC said.

The team’s first meeting has determined its operating mechanism, which will enhance the two departments’ coordination on policies, said Wang Qing, chief macro analyst of Golden Credit Rating. The PBOC regulates market liquidity through treasury bond trading, which enriches the channels for the injection of funds and guides the treasury bond yield curve, striking a balance between stable growth and risk prevention.

The joint working group will act as a close communication mechanism between the central bank and the monetary authority on the issuance of treasury bonds so that the latter can more accurately regulate the liquidity of the banking system and avoid unreasonable fluctuations in the interest rate of issued treasury bonds, said Zhang Xu, chief fixed income analyst at Everbright Securities.

This will also encourage the PBOC to make more efforts to trade treasury bonds, industry insiders said.

Editor: Kim Taylor