China's central bank wants to shift its policy framework to target the cost of credit rather than its size, but liquidity risks and uncooperative markets are...
BEIJING - China 's central bank wants to shift its policy framework to target the cost of credit rather than its size, but liquidity risks and uncooperative markets are making it difficult to transition the economy away from state-directed bank lending.
But a slowing economy, still heavily reliant on state-led infrastructure investment for growth and in the middle of modernising its industrial complex, has significant liquidity needs. Markets may be unwilling to provide funding in ways the PBOC considers beneficial for national development goals. "We are moving in the direction of developing market-based interest rates, but it's an arduous task and the road is long," said a government adviser who spoke on condition of anonymity as they are not authorised to speak to media.Future reforms are likely to involve phasing out liquidity supply levers, including credit guidance, analysts and policy advisers say.
"Once you completely liberalise interest rates, it would be impossible to intervene," Xing said. "It's a contradiction: if you let the market work, you have less room to manoeuvre."
China Interest Rate Capital Markets Central Bank Liquidity Risks Policy Framework Bank Of China Xing Zhaopeng Monetary Policy
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