People’s Bank of China (PBOC) Plans

The People’s Bank of China (PBOC) aims to create a more market-driven interest rate curve and reduce reliance on quantitative policy tools to help transition the economy from state-led bank lending.

Key Interest Rates

Reverse Repo Rates

The PBOC purchases government bonds from commercial banks through reverse repos with an agreement to sell them back. On July 22, the seven-day reverse repo rate was cut by 10 basis points (bps) to 1.7%, where it has remained steady.

Loan Prime Rates (LPR)

These benchmark lending rates are based on quotes from 20 commercial banks. On July 22, the PBOC reduced the one-year LPR, tied to consumer loans, by 10 bps to 3.35%, and the five-year rate, linked to mortgages, to 3.85%.

Medium-Term Lending Facility (MLF) Rate

Previously the benchmark rate, this is the rate at which banks can borrow from the PBOC for one year. The one-year MLF rate now stands at 2.3%. As of June, outstanding MLF funding was 7.07 trillion yuan ($994.6 billion), about 5.6% of GDP.

Standing Loan Facility (SLF) Rate

This is for short-term loans to commercial banks, with low usage. The seven-day SLF rate is at 2.7%.

Interest Rate on Excess Reserves

For banks depositing surplus cash at the central bank, this rate is 0.35%.

Quantitative Tools

Reserve Requirement Ratio (RRR)

This ratio indicates the cash banks must keep as reserves. The average RRR has been cut from nearly 15% in 2018 to about 7%, injecting more than 12 trillion yuan into the economy.

Open Market Operations (OMO)

The PBOC conducts OMO mainly through short-term repo and reverse repo operations to manage liquidity.

Structural Tools

The PBOC has broadened its structural policy tools, involving relending facilities and low-cost loans to support essential sectors such as tech innovation, carbon reduction, and affordable housing.

For instance, the Pledged Supplementary Lending (PSL) facility opened in 2014 provides funding for infrastructure and redevelopment in the property market. In May, the PBOC initiated a 300 billion yuan relending program to facilitate 500 billion yuan funding for state-owned firms to buy vacant apartments and convert them into affordable housing. Outstanding structural monetary policy tools totaled 7.03 trillion yuan at the end of June, which includes 2.82 trillion yuan through the PSL.

($1 = 7.1086 Chinese yuan)