The monetary policy of the PBC has been discussed in the below mentioned fashion under specific subheadings:

1. China’s monetary policy in general
2. Evolution of the PBC monetary policy & exchange rate regime
3. Policy tools, Interest rate reform & Liquidity control
4. Coping with crisis & goals being set for the future

1. China’s monetary policy in general: General overview:

On a whole, the Chinese monetary policy concentrates more on the stability of RMB & more focused on the inclusive economic growth strategies. Thus maintaining the continuum, the People’s Bank of China (PBOC) stipulates the objective of the monetary policy to keep the RMB as stable as possible in response to the international market so as to contribute to the economic growth of the country.

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Let us see the various perspectives which has been focused by the PBOC monetary policy under below headings:

1. Steady inflation control objective to address overheating
2. Varying multiple objectives based on national conditions
3. Maintaining sound financial institutions’ conditions

1. Steady inflation control objective to address overheating:

When we talk about any central bank’s monetary tools, we come to know that the price stability & financial stability is the common measures taken. The Peoples’ bank of China is also none of the exceptions. I addition to the above, as the Chinese economy is considered to be a transitional economy type, the focus of the PBOC is more on the RMB stability and inflation control being the top most priority among all of its measures. In Chinese economy, there is always an effect of soft fiscal constraints which means that people in the localities have strong influence in borrowing & investing in large projects. This in fact establishes the loose monetary stance. The craziness of quick transformation towards the rapid urbanization drive the local governments to go for easy financing options so as to develop infrastructure projects. This aggregation might produce the overheating effect in the financial market in the Chinese economy. This in fact might create the large inflow of exchange & oversupply of liquidity. The domestic price stability may be disturbed due to this. Hence the PBOC always uses its monetary policy to maintain the price level in all time control.