Flexibility best bet against uncertainty

When China's central bank recently snapped its long-running reliance on reverse repurchase agreements (repos) and offered forward repos to drain market liquidity, the future of the country's monetary policy became the subject of heated discussion.

Not surprisingly, concerns about inflation and economic growth have done much to color opinions on the subject. The current consensus view among experts is that the country's consumer price index will rise by an annual rate of 3 percent in February, up from the 2 percent growth witnessed in January. At the same time, it's still anyone's guess whether China's economy is really on the path to recovery as signs of weakness linger in the global market.

To meet the complicated and unstable economic conditions taking shape both at home and abroad, we would recommend the central bank rely on the more flexible monetary tools at its disposal, such as repos and the recently introduced short-term liquidity operations.

The authors are Zhao Xiao and Yue Anshi, staff members from University of Science and Technology Beijing.