China’s central bank said it’s studying a plan to narrow the range within which market interest rates can fluctuate, with policymakers on alert for risks building in the bond market.
The People’s Bank of China is considering how to “reasonably” narrow the rate corridor, according to a quarterly monetary policy report published Friday. In June, Governor Pan Gongsheng said a tighter band would signal a clearer policy target.
Pan has been taking greater control of market liquidity and borrowing costs across the yield curve this year. On top of signaling the bank’s preference for a single short-term rate, policymakers have flagged that the PBOC is preparing to cool a bond rally by selling longer-term securities that have soared amid booming demand for haven assets.
Policymakers also used the report to sound warnings about the risks of what they consider a bond-market bubble.
Some wealth management products — especially those based on bonds — have achieved better returns due to their leverage, the PBOC said. It said the approach carries a lot of interest rate risk and can lead to losses if yields rise sharply.
Separately, the PBOC reaffirmed a pledge to make a mild rebound in inflation an important policy consideration and to keep consumer prices at a reasonable level.
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In a special section analyzing the policies of other central banks, the PBOC said market expectations are on the rise that the US Federal Reserve will cut rates.
That could lead to volatility in global financial markets, and such swings have already taken place recently, it said. China will continue to focus on its own agenda in making monetary policy decisions, according to the PBOC.
