MNI BRIEF: PBOC To Prioritise Interest Rate Efficacy - Xuan

The PBOC is prioritising interest-rate adjustments over quantity-based tools to enhance the effectiveness of policy as it faces unprecedented external and domestic uncertainties, said Deputy Governor Xuan Changneng on Thursday at the Boao Forum For Asia Annual Conference 2025. 

The traditional aggregate metrics, such as loan and money supply growth, have become increasingly distorted by special factors caused by uncertainties, leading to their weaker correlation with broader economic indicators, he noted. Therefore, the Bank has clarified the policy rate status of the 7-day reverse repo rate for open market operations, while downplaying the role of the Medium-term Lending Facility (MLF) rate, aiming to streamline policy communication, prevent excessive market speculation, and avoid divergence in expectations caused by overlapping signals.

Amid profound shifts in the domestic and international environment, China’s monetary policy faces uncertainty considering rising geopolitical tensions and deglobalisation trends, accelerating domestic structural shifts, such as the repositioning of real-estate and local-government financing models, and industrial upgrading, he said. (See MNI:PBOC To Buoy Assets, As Stocks, Property Added To Mandate)

Global markets face heightened turbulence, including sharp equity selloffs, erratic gold price movements and extreme volatility in assets like Bitcoin, which has also imposed significant challenges to monetary policy, Xuan said.