Institutional framework

Article 3 of the Law of the People's Republic of China on the People's Bank of China establishes that "the objective of monetary policy is to maintain the stability of the value of the currency and thereby promote economic growth."

Article 2 of the Law of the People's Republic of China on the People's Bank of China establishes that "the People's Bank of China shall, under the leadership of the State Council, formulate and implement monetary policy"

Article 23 of the Law of the People's Republic of China on the People's Bank of China establishes that "to implement monetary policy, the People's Bank of China may use the following monetary policy instruments: (1) requiring banking financial institutions to place deposit reserves at a prescribed ratio; (2) deciding on the benchmark interest rates of the central bank; (3) providing discount services to banking financial institutions that have opened accounts in the People's Bank of China; (4) providing loans to commercial banks; (5) purchasing and selling central government bonds and other government securities, financial bonds, and foreign exchange on the open market; and (6) other monetary policy instruments decided by the State Council".

Key features of the monetary policy implementation framework

First, a series of monetary-policy instruments, including Open Market Operation (OMO), Required Reserve Ratio (RRR), Medium-term Lending Facility (MLF), and Standing Lending Facility (SLF) etc are employed to manage liquidity in the banking system.

With recent reform, the PBC established a new RRR framework featuring "three tranches of reserve requirements and two additional preferential treatments" to guide small and medium-sized banks to provide services to local enterprises and to the real economy. "Three tranches" refer to three levels of the RRR based on the systemic importance, the institution type, and service positioning of the financial institutions. The first tranche applies to large banks to reflect the requirements to prevent systemic risks and maintain financial stability. The second tranche, whose RRR is slightly lower, applies to medium-sized banks, including joint-stock commercial banks and city commercial banks. The third tranche applies to small banks, which include rural credit cooperatives, rural cooperative banks, village banks and rural commercial banks operating and providing services to counties. "Two additional preferential treatments" refer to two preferential policies based on the three-tranches. First, first and second tranche banks that have met the evaluation criteria for the targeted RRR cuts for inclusive finance will be eligible for further RRR cuts of 0.5 percentage point or 1.5 percentage points. Second, for banks that operate and provide services to counties, when their local lending accounts for a certain proportion of the increment in their deposits, they will be eligible for a further RRR cut of 1 percentage point. And besides, the PBC also adjusted the criteria for assessing inclusive Micro and Small Businesses (MSBs) loans to expand coverage of the preferential policy on targeted reserve requirement ratio cuts for inclusive financing.

Second, the PBC established a preliminary policy interest-rate system including short-term policy rate which is OMO rate, mid-term policy rate which is MLF rate, and interest rate corridor, the ceiling of the corridor is SLF rate, and the bottom of the corridor is excessive reserve rate.

With recent reform, the PBC worked to improve the LPR formation mechanism among commercial banks and to have the LPR play a guiding role in the formation of real interest rates so as to improve the market-based interest-rate formation and transmission mechanism, which smoothed the transmission of policy rates to market rates and promoted a reduction in the real interest rates for the financing of enterprises. The quote is formed by adding a few basis points to the interest rate of open market operations, which mainly refers to the rate of Medium-term Lending Facility, or MLF, with a maturity of one year in most cases. In addition to the previous one-year maturity. The LPR will also cover the maturity longer than five years, which will serve as the pricing reference for bank's long-term loans such as housing mortgage, and facilitate a steady transition of outstanding long-term loan contracts with floating rates to the ones adopting LPR in the future.

Third, the PBC leverages targeted RRR reductions, central-bank lending, rediscounts, Pledged Supplementary Lending (PSL), Targeted MLF (TMLF) etc. to guide financial institutions to increase support for the key sectors and weak areas in the economy, such as MSBs and private firms.

Fourth, the PBC enhanced macro-prudential management and gave full play to the role of the macro-prudential assessment (MPA) in counter-cyclical adjustments and structural guidance.

Fifth, the exchange-rate regime reform has achieved great progress. The flexibility of exchange rate of RMB has been obviously increased, which is mainly driven by market forces. The RMB exchange rate fluctuated in both ways based on market supply and demand in reference to a basket of currencies and it was basically stable at a reasonable and equilibrium level.

Sixth, the PBC paid great attention to enhance the communication with public through a variety of channels, like press conferences, monetary policy reports, statements on PBC website, newspaper and official account of some popular social media, for example, Wechat and Weibo.

Institutional setup of monetary policy decisions and operations

Policy decision body, size and composition PBC makes and implements monetary policy under the guidance of the State Council.
Major mandates Maintain the stability of the value of the currency and thereby promote economic growth.
Decision-making process
Frequency / length of meetings
Frequency of announcements
Main policy target

Overview of key features

Key policy rate Benchmark interest rates
maturity (days)
Operating target Excess Reserve and short term interest rate
maturity (days)
Standing facilities Lending
Corridor width (bp) N/A
Reserve requirements Yes
maintenance period 10 days
Main operation RT
maturity (days)
regular interval
Overall frequency Daily
Discretion left to operational desk
Key policy signals via
keynote tender
standing facility

Monetary policy communication

Explicit use of forward guidance
Timing / media of policy announcement Statement on PBC website, newspaper and official account of online social media like Wechat and Weibo.
Policy announcement and documents Statement on PBC website, newspaper and official account of online social media like Wechat and Weibo.
Explaining policy decisions Press conference, monetary policy report, statement on PBC website, newspaper and official account of online social media like Wechat and Weibo.
Dissemination of minutes (timing / media)
Content of minutes
Publication of forecasts
Publication of projected path of policy rate

Reserve requirements: ratios and size

Main functions served Liquidity management
Domestic currency 6–13%
Foreign currency 5%
Required reserves CNY 18 trn
Required reserve as % of GDP 19.30%
Actual reserves CNY 20 trn
Actual reserve as % of GDP 21.40%

Main features of reserve requirements

Averaging Y
Carry-over N
Type Lagged
Maintenance period 10 days
end (day) 5th, 15th, 25th
Calculation period 10 days
end (day) 10th, 20th, end-month
Lag before maintenance 5 days
Vault cash N
Remuneration Y
average rate
marginal rate
Framework last changed 05/19

Liquidity position and forecasting

Structural Position Closing to balanced
Most volatile factor(s) Government sector flows
Most unpredictable factor(s) Government sector flows
Forecast horizon(s) 3 month
Frequency Daily
Frequency of revision Daily
Forecast published? No

Standing facilities: lending / market ceiling

Name Standing Lending Facility
Form Collateralised loan
Pricing method Fixed rate
Maturity O/N, 1w, 1m
Access limited by/to Collateral
Function(s) Liquidity management, smooth interest rate volatility

Standing facilities: deposit / market floor

Name N/A
Form N/A
Pricing method N/A
Maturity N/A
Access limited by/to N/A
Function(s) N/A

Open market operations: repo or reverse repo

Name/Type Repo / reverse repo
Maturity Generally 7 days, other maturity up to 1 year, conducted discretionarily
Frequency Daily
Pricing method Auction
Access limited by/to Primary Dealers
Function(s) Liquidity injection and withdrawal

Open market operations: central bank bills

Name Stopped issuance since 2014
Total issuance N/A
Maturity N/A
Restrictions on possible maturities N/A
Pricing method N/A
Access limited by/to N/A
Discretion left to operational desk N/A

Open market operations: FX swaps

Maturity N/A
Frequency N/A
Pricing method N/A
Access limited by/to N/A
Function(s) N/A

Other significant liquidity management means

Name/Type (i) Medium-term Lending Facility (MLF)
(ii) Pledged Supplementary Lending(PSL)
(iii) Targeted Medium-term Lending Facility (TMLF)
Form (i) Collateralised lending
(ii) Collateralised lending
(iii) Collateralised lending
Frequency (i) As needed
(ii) As needed
(iii) As needed
Maturity (i) 3 months, 6 months, 1 year
(ii) 1 year
(iii) 1 year
Pricing Method (i) Auction
(ii) Based on policy rates
(iii) Based on policy rates
Access limited by/to (i) Eligible banks
(ii) 3 policy banks
(iii) Eligible banks
Function(s) (i) Liquidity management
(ii) Liquidity management
(iii) Liquidity management

Settlement systems and intra-day liquidity facilities

Settlement system RTGS, since 2005
Intra-day liquidity facility Intra-day collateral loan and overdraft
Charge Charge at interest rate of SLF(Standing Lending Facility)
Foreign currency settlement system No
CLS participation by banks Yes
Other settlement system(s)


Standing facilities: List of eligible collateral High quality bonds and loans
Standing facilities: Discretion of central bank on collateral The PBC has expanded LPP (Loan Pledged Program) and ICR(Internal Credit Rating) programs nationwide on the basis of the pilot experience on December 2017. The loans of the corporate borrowers who meet the ICR standards could be brought into the eligible pool of collateral of PBC.
Open market operations: List of eligible collateral Government bonds, Central Bank bills and Policy Bank bonds, Government Sponsored Bonds and other High quality bonds
Open market operations: Discretion of central bank on collateral None

Dissemination of operational information: liquidity forecast

Forecast published? No

Dissemination of operational information: open market operations

Volume and price published? Yes
Channel(s) PBC website,,
Timing Immediately after operations

Dissemination of operational information: standing facilities

Lending facility usage: Channel(s) PBC website
Lending facility usage: Timing Monthly
Deposit facility usage: Channel(s) N/A
Deposit facility usage: Timing

Other information dissemination

Type China Monetary Policy Report
Channel(s) PBC website
Timing Quarterly