China News Service:

We recognize that high-quality development is inseparable from the advancement of financial system reform. Looking ahead, how will the central bank further refine its monetary policy framework? Thank you.

Lu Lei:

The reporter is very much concerned about monetary policies. We will have Mr. Zou Lan to answer this question.

Zou Lan:

Thank you for your question. PBC Governor Pan Gongsheng outlined the approach to improving the monetary policy framework at the Lujiazui Forum in Shanghai on June 19. Building on this, I'd like to provide an introduction that includes some updates on the latest progress.

The third plenary session of the 20th CPC Central Committee proposed deepening financial system reform and accelerating improvements to the central bank system. At its core, this involves enhancing the modern monetary policy framework with Chinese characteristics and building a strong currency. We will further improve the monetary policy framework with Chinese characteristics, considering economic and financial developments and conducting prudent assessments of monetary policy effectiveness.

First, we should consider optimizing the intermediate variables for monetary policy regulation. In recent years, China's economic structural transformation has accelerated. The financial market has developed and the financing structure has evolved. These changes have reduced the measurability and controllability of the money supply and its correlation with the economy. We will gradually shift focus from quantitative targets, using them more as observational, reference and anticipatory indicators. Instead, we'll pay more attention to price-based regulation tools such as interest rates. Simultaneously, in light of changing circumstances, we will study and improve the statistical criteria for money supply to ensure monetary statistics reflect the actual situation.

Second, we need to reform the interest rate regulation mechanism. Previously, we had multiple policy rates, making it unclear which one the market should use as a reference. Now, we have made it clear that the 7-day repo rate in the open market is the major policy rate, with the medium-term lending facility playing a secondary role in policy rates. We've changed the 7-day reverse repo from interest rate bidding to fixed-rate quantity bidding, fully meeting primary dealers' bidding needs. The interest rate is no longer a tender result but is determined by the central bank in accordance with the needs of implementing monetary policy. The quantity is no longer a means for the central bank to regulate liquidity but is jointly determined by primary dealers based on the policy rate and their market judgment. This helps boost institutions' initiative to manage liquidity.

In the future, we will further improve the market-based interest rate regulation mechanism. We'll appropriately narrow the width of the interest rate corridor to better guide market-based interest rates to operate steadily around the policy rates. Meanwhile, in terms of interest rate transmission, we'll focus on improving the quality of loan prime rate (LPR) quotes, granting financial institutions more power to set their interest rates, more accurately reflecting loan market rates, and promoting the smooth transmission of market interest rates from short to long term. To avoid affecting the transmission of policy rates to the LPR, the monthly medium-term lending facility operations will be scheduled after the LPR is published. The price will be determined by the bidding agencies' offers.

Additionally, we will continuously enrich our monetary policy toolkit. To implement the Central Financial Work Conference's requirement to enrich the monetary policy toolkit and increase treasury bond trading in the central bank's open market operations, the PBC has been conducting government bond trading since August. We released the "Announcement on Government Bond Transactions No.1" at the end of August, on the basis of strengthening coordination with financial departments and continuously optimizing the institutional arrangements for the issuance and trading of treasury bonds. In August, the PBC purchased short-term treasury bonds from primary dealers and sold long-term treasury bonds, with a net monthly purchase of 100 billion yuan in treasury bonds. The central bank's treasury bond trading primarily focuses on base currency supply and liquidity management. It allows for both buying and selling treasury bonds. Through flexible combination with other tools, short-, medium- and long-term liquidity management can be sound and targeted. At the same time, we will also take innovative steps to implement structural monetary policy tools in line with macroeconomic conditions and regulatory needs, continuously improving the efficiency of monetary policy.

Finally, we must further improve the transmission of monetary policy. This process actually has two stages. The first is transmission from the central bank to financial markets. By strengthening policy communication and expectation guidance, increasing monetary policy transparency, and enhancing financial institutions' capacity to set prices independently and rationally, we can improve the quality and efficiency of financial services. The second stage is transmission from financial markets to the real economy. We need to focus on removing barriers to policy transmission and strengthen coordination among monetary, fiscal, industrial, regulatory and other policies. We aim to promote supply-demand balance and shift economic policy focus toward areas benefiting people's livelihoods and boosting consumption. We will also improve how policies affect real economic factors like consumption, investment and other variables. These efforts will help improve the quality and efficiency of financial services.

That's all from me. Thank you!