China’s Toolkit to Manage Monetary Policy: QuickTake Scorecard

China’s central bank has assembled a unique -- and ever more complex -- toolkit to fine-tune the world’s second-biggest economy. Once largely reliant on benchmark rates, the People’s Bank of China has in recent years used an expanding number of instruments to guide borrowing costs and create an interest-rate corridor. It has increased the frequency of its open-market operations, while officials have been more vocal in signaling policy intentions. Here’s a look at some of the key weapons in the PBOC’s armory:

These contracts are the most frequently used and offer mainly short-term loans to banks. Depending on the size of the funds added and the amounts that mature, the operations can result in either a net injection or withdrawal of cash from the financial system. While the tenors can range from seven days to several years, the one-week, 14-day and 28-day contracts are the most common. They have an immediate effect on the money market, pushing rates one way or the other. The PBOC said in February 2016 that it was moving to daily, rather than twice-weekly, OMOs to improve their effectiveness. The operations are carried out using what are known as reverse-repurchase agreements, where banks use bonds as collateral to borrow funds from the PBOC and agree to return the money at a future date. The central bank also uses repurchase agreements, which drain cash, as well as bill sales in its OMOs.