(Yicai Global) March 21 -- China's monetary policy should focus on controlling inflation while promoting transformation, development and financial reforms, the People's Bank of China (PBOC) said in its latest policy document.
Reminding that monetary policy objectives have different emphasis in different periods, China's central bank said yesterday the current monetary policy should pay attention to employment and economic growth, balance of payments and financial stability, as well as inflation target.
However, China's monetary policy still faces a number of challenges, the PBOC stated. The independence of China's central bank needs to be strengthened, compared with its peers in developed economies. Monetary and fiscal policies mainly serve industrial policies and economic growth while some regulation and macro-prudential management are lacking.
The document also called for clarifying new short-term monetary policy interest rates and target levels as soon as possible, further improving open market operations and primary dealer system, expanding the scope of transaction targets for open market operations and standing lending facilities (SLF) under certain standards. The PBOC also highlighted the importance of improving operational processes, reducing arbitrage opportunities, reducing the spillover effect of liquidity shocks caused by market structure factors and effectively providing interest rate guidance.
Regarding the implementation of China's monetary policy in recent years, the egarding the implementation of China's monetary policy in recent years, the PBOC said as adjusting reserve requirements could lead to balance sheet effect and send a strong signal, given the country's liquidity conditions and economic restructuring drive, the central bank relies more on open market operations and innovative liquidity management instruments to strengthen financial support for key areas and weak segments in a targeted manner while meeting market demand for funds with different maturities.