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China central bank to use more open-market operation

By Tao Dong (Shanghai Daily)

11:03, November 08, 2012

THE People's Bank of China (PBoC) published the "China Monetary Policy Report" for the third quarter of 2012 last Friday. In its outlook for Chinese economy, the central bank assessed that the fundamentals for stable economic growth has not been affected, and the economy should see a steady and relatively rapid growth pace.

The PBoC also stated that it would place a higher priority on shoring up the economy and continued to implement prudent monetary policy.

While the central bank pledged to keep its monetary stance stable for the coming months, it placed a more significant emphasis on maintaining an appropriate level of liquidity in economy.

In the policy outlook, the PBoC stated that it would continue to use liquidity management processes involving reverse repurchases and reserve requirement ratios to adjust liquidity of the banking system and maintain interest rates at a stable level.

We think this report indicates the relatively constructive view on the Chinese economy held by the PBoC.

Explicitly, the PBoC has changed the description of the economy outlook from "a steady growth pace" in its report for the second quarter, to "a steady and relatively rapid growth pace" in the current report.

Implicitly, the PBoC has maintained the "prudent monetary policy" outlook. We assess that the central bank will continue to use instruments through the open market operation to manage the liquidity level in the economy.

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