Central Banks
China’s Benchmark Rate Becomes Endangered Species in Central Bank Shift
- The one-year MLF will become less important in guiding markets
- Economists expect a transition phase of at least another year
The People's Bank of China (PBOC) building in Beijing.
Source: Bloomberg
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The People’s Bank of China’s Governor Pan Gongsheng last month said Beijing is studying shifting to a short-term rate to guide markets, spurring traders and economists to slap an endangered species tag on the existing one-year benchmark.
Monday’s announcement of a new mechanism to influence short-term borrowing costs seems to have made that extinction all but certain. It’ll start conducting bond repurchase operations in the afternoon in addition to its traditional morning operations, narrowing volatility around the seven-day repurchase rate and strengthening expectations for it to become the new policy benchmark.