Abstract
The Outline of the 13th Five-Year Plan clearly stated that China should “improve the operational targets, regulatory framework, and transmission mechanisms of monetary policies, establish mechanisms for target interest rates and interest rate corridors, and shift our focus from quantitative to price-based monetary policies”. The central bank adjusts those rates by decree or by open-market operations, thereby realizing the intent of monetary policy adjustments. The market will decide the other interest rates in the financial market, such as Treasury bond yields, commercial paper rates, interest rates of financial derivatives, and retail rates that banks offer to clients including the interest rates for large-denomination certificates of deposit (CD) and prime rate. Commercial banks may transfer this loss to other ordinary clients, especially private-owned and small and micro businesses. The central bank not only refrains from adopting a deluge of strong stimulus policies, but implements a lot of measures that prevent financial risks and remedy regulatory shortcomings.
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