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Published on Friday, July 4, 2025

China | Stocktaking China’s new toolkit in its monetary policy framework

Summary

We elaborate on the recent developments of China's monetary policy framework, including introducing new policy rate, upgrading "corridor" and developing new monetary policy tools.

Key points

  • Key points:
  • The PBoC has continued to improve the “corridor system” and the monetary policy framework in the past years to smooth monetary policy transmission mechanism.
  • Chief among these new developments is promoting 7-day reverse repo as the new monetary policy rate, from previous MLF and LPR.
  • The PBoC improves the “corridor” system through narrowing the previous wide “corridor” to a narrower “corridor” , such as to introduce overnight repo and reverse repo rate to guide this change.
  • The PBoC also develops new monetary policy tools: (i) treasury bond buy and sell in the secondary market. (ii) creating swap facilities with securities, mutual funds and insurance companies to use their bond, stock ETF and CSI 300 stocks etc. as the collateral with the PBoC to exchange for high liquidity assets (iii) Open market operations Buyout Reverse Repo. (iv) Re-lending facilities for stock share repurchase and increase in shareholding for high-quality listed firms.

Geographies

Documents and files

China | Stocktaking China’s new toolkit in its monetary policy framework
Report (PDF)

China | Stocktaking China’s new toolkit in its monetary policy framework

English - July 4, 2025

Authors

JD
Jinyue Dong BBVA Research - Principal Economist
LX
Le Xia BBVA Research - Chief Economist
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