Guiding market rates move stably - China case

 Guiding market rates to move stably around central bank policy rates. On January
17, the rates paid on the 1-year Medium-term Lending Facility (MLF) and the 7-day
open-market operations both declined by 10 basis points to 2.85 percent and 2.10
percent, respectively, which was conducive to uplifting market confidence and to
promoting a decline in overall financing costs. This demonstrated that the monetary
policy measures were being taken in a proactive and foresighted manner. In Q1, the
PBC guided market rates to stably move around the lowered open market operation
rates and the MLF rates, and it realized the interest rate management goals. Money
market rates remained stable during the Spring Festival season and at end-March.
Continuously conducting central bank bill swap (CBS) operations. In Q1 2022, the
PBC conducted CBS operations on three occasions, with the total amount registering
RMB15 billion. 

The maturity of each operation was three months, at a fixed rate of 0.10
percent. Since the beginning of 2022, the PBC has conducted CBS operations regularly
on a monthly basis, and these operations have played a positive role in boosting
liquidity in the secondary market of bank-issued perpetual bonds, in supporting the
issuance of perpetual bonds to replenish capital by banks, especially by small and
medium-sized banks, and in strengthening the credit supply capacities of small and
medium-sized banks.
Figure 3 Volume of Spot Transactions of Bank-issued Perpetual Bonds
Issuing central bank bills in Hong Kong on a regular basis. In Q1 2022, the PBC
issued three batches of RMB-denominated central bank bills in Hong Kong, totaling
RMB30 billion. Specifically, the 3-month, 6-month, and 1-year bills registered RMB10
billion, RMB5 billion, and RMB15 billion, respectively. Meanwhile, in Hong Kong,
the RMB-denominated central bank bill repos market developed further, with the scope
of the institutional participants continuously expanding. The regular issuance of central
bank bills and the development of the central bank bill repos market in Hong Kong
enriched the scope of RMB investment products and RMB liquidity management tools
in Hong Kong, which played an active role in promoting the sound development of the
offshore RMB money market and bond market and in propelling both domestic and
overseas market entities to issue RMB-denominated bonds and to conduct RMB
business in the offshore market. 

II. Conducting Medium-term Lending Facility and Standing Lending Facility
operations in a timely manner
Conducting MLF operations in a timely manner. In order to ensure an appropriate
supply of medium and long-term liquidity and to give play to the signaling and interest
rate guiding functions of medium-term policy rates, the PBC conducted a total of
RMB1.20 trillion of MLF operations in Q1 2022, all with a maturity of one year and an
interest rate of 2.85 percent, 0.1 percentage points lower than that at end-2021. At endMarch, the outstanding MLF registered RMB4.95 trillion, RMB400 billion more than
that at the beginning of 2022.
Further advancing the reforms of electronic SLF operations. The entire process of
conducting SLF operations became electronic in an orderly manner, which boosted
operational efficiency. Locally incorporated financial institutions were provided with a
sufficient amount of short-term liquidity support as needed so as to stabilize market
expectations, strengthen the stability of liquidity in the banking system, and forestall
liquidity risks. In Q1, the PBC conducted a total of RMB6.43 billion SLF operations.
At end-March, the balance of SLF operations registered RMB1.26 billion. The SLF rate
played a role as the ceiling of the interest rate corridor, and it promoted smooth
operation of the money market. At end-March, the overnight, 7-day, and 1-month SLF
rates stood at 2.95 percent, 3.10 percent, and 3.45 percent, respectively, with the rates
0.1 percentage points lower those at end-2021.

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