On January 22, Pan Gongsheng, Secretary of the Party Committee and Governor of the People's Bank of China, stated that in recent years, China's financial system structure has undergone profound changes, with the proportion of new loans in the incremental social financing scale dropping below 50% by 2025. Against this backdrop, the improvement of the monetary policy framework needs to adapt to the evolving financial system to enhance the scientific nature and effectiveness of regulation. During the "16th Five-Year Plan" period, to build a scientifically sound and robust monetary policy system, efforts will focus on advancing the following six areas:
First, optimize the monetary policy target system, particularly the intermediate variables, by de-emphasizing the focus on quantitative targets. Treating financial aggregates more as observational, referential, and anticipatory indicators will create conditions for allowing interest rate adjustments to play a greater role.
Second, improve the base money supply mechanism that combines short, medium, and long-term measures with Chinese characteristics. Gradually utilize government bond trading in liquidity management to maintain ample liquidity in the banking system.
Third, refine the market-based formation, regulation, and transmission mechanism of interest rates, further smoothing the transmission from the central bank's policy rates to market benchmark rates, and then to various financial market interest rates.
Fourth, enhance the system of structural monetary policy tools to better guide and incentivize financial institutions to optimize their loan allocations and effectively execute the "Five Major Areas of Finance."
Fifth, improve the RMB exchange rate formation mechanism, adhere to the decisive role of the market in exchange rate formation, maintain exchange rate flexibility, while preventing the risk of exchange rate overshooting.
Sixth, enhance policy communication and transparency by further establishing a credible, regular, and institutionalized market communication mechanism.
