Factbox-China’s central bank’s policy arsenal By Reuters

BEIJING (Reuters) – The People’s Bank of China (PBOC) is looking to create a more market-based interest rate curve and move away from quantitative policy tools to help wean the economy off state-directed bank lending.

Here is a description of the key interest rates and policy tools.

INTEREST RATES

* Reverse repo rates – at which the PBOC buys government bonds from commercial banks in open market operations with an agreement to sell them back in the future, thereby providing the banks with short-term liquidity. On July 22, the PBOC cut the seven-day reverse repo rate by 10 basis points (bps) to 1.7% and has held it steady since then.

This rate became the main policy rate of the PBOC. The central bank uses an interest rate corridor consisting of temporary overnight repos and reverse repos to guide interbank rates to fluctuate around the reference value.

* Loan prime rates (LPR) – lending reference rates that are based on quotes from 20 commercial banks. The PBOC has committed to improving the quality of the LPR to better reflect the real costs of borrowing.

On July 22, the PBOC cut the one-year LPR linked to regular consumer loans by 10bps to 3.35% and cut the five-year mortgage-linked rate by the same margin to 3.85%.

* The Medium Term Lending Facility (MLF) rate was the previous reference rate. It is the rate at which banks can borrow from the PBOC for one year. The one-year rate is 2.3%.

At the end of June, outstanding financing through the MLF stood at 7.07 trillion yuan ($994.6 billion) – about 5.6 percent of GDP.

* Standing Lending Facility (SLF) rate – for short-term loans granted to commercial banks. The use of SLF is reduced. The seven-day SLF rate is 2.7%.

* Interest rate on excess reserves – which banks receive for depositing excess cash with the central bank. This is 0.35%.

QUANTITATIVE TOOLS

* Reserve Requirement Ratio (RRR) – the amount of cash that banks must keep as reserves at the central bank.

The PBOC cut the weighted average RRR from nearly 15% in 2018 to around 7%, pumping more than 12 trillion yuan into the economy.

* Open Market Operations (OMOs) – The PBOC mainly conducts OMOs through short-term repos and reverse repos to manage market liquidity.

* Structural instruments – The PBOC has in recent years expanded its basket of structural policy instruments, including loans and other low-cost loans, as it aims to provide long-term support to some key sectors, including technological innovation, carbon reduction and affordable loans. housing.

For example, the Supplementary Pledged Loan Facility (PSL), launched in 2014, provides long-term financing for government infrastructure and urban redevelopment – ​​a form of support in the real estate market.

In May, the PBOC launched a 300 billion yuan lending program to facilitate financing of up to 500 billion yuan for state-owned firms to buy empty apartments and turn them into affordable housing.

Outstanding structural monetary policy instruments stood at 7.03 trillion yuan at the end of June, including 2.82 trillion through the PSL.

($1 = 7.1086)