The central bank is giving thought to a new money supply adjustment facility to offer a mid-term interest rate benchmark and stabilize social financing costs, China Business News reported Wednesday, citing unnamed sources.
The facility, called pledged supplementary lending (PSL), is similar to re-lending arrangements and gives the central bank another tool to balance money supply when trade surplus and funds outstanding for foreign exchange both fall, the report said.
A central bank official was quoted as saying that the People’s Bank of China could use differential tools to meet liquidity needs, and not just rely on adjusting the required reserve ratio. When the ratio is cut, commercial banks become more liquid, making it difficult to stabilize the market.
PSL would add to the various tools, such as reverse repurchases, re-lending, and targeted ratio cuts, the central bank already uses to adjust basic money supply, according to the report.
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