MONETARY POLICY IN THE POST-PROACTIVE-FISCAL-POLICY PERIOD

Adjust intermediate targets of monetary policy

Firstly, the major controlling indicator of money supply should be between M1 and M2. Secondly, a rational growth goal should be defined for money supply. Finally, the intermediate objectives of monetary policy should be diversified.

Make appropriate plans and promptly adjust base money to maintain its rapid growth

Currently, the balance of base money is RMB 4.03 trillion yuan. To meet the requirement of economic growth after the phase-out of the proactive fiscal policy, the balance should reach RMB eight trillion yuan and keep an annual growth rate of 25 per cent.

Perfect and apply monetary policy instruments flexibly

Measures include: regulate rediscount operation, further develop open market operations, make full use of reserve requirements, and promote the interest rate liberalization.

Improve the transmission mechanism of monetary policy to enhance its effectiveness

The central bank should promote scientific decision-making and effective implementation of monetary policy. The money market should be vigorously developed, as its development directly influences the pattern and effect of monetary policy implementation. The reform of state-owned commercial banks should be accelerated to establish a dynamic operational mechanism. The assets-liabilities ratio of state-owned enterprises should be lowered and the construction of market credit should be enhanced.

Coordinate monetary policy with macro policies such as fiscal policy, industrial policy, and income policy, etc.

Financial supervision should be strengthened according to the laws to safeguard the smooth implementation of monetary policy

After the phase-out of the proactive fiscal policy, in implementing proactive monetary policy, the focus of financial supervision should be put on preventing and dissolving financial risks, in particular, the risks of solely state-owned commercial banks.

(by Hou Zhengfang, PBOC Nanyang Central Sub-branch)