People’s Bank of China Emphasizes ‘Prediction’ of RRR Cut to Manage Expectations
In a surprising move, Pan Gongsheng, governor of the People’s Bank of China, “announced” the news of the RRR (reserve requirement ratio) cut at a press conference of the State Council Information Office yesterday, directly responding to the market’s expectations for an increase in monetary policy. This method of communication has been described as “unprecedented” by industry insiders, indicating potential new changes in the use of monetary policy in China.
Many experts believe that the emphasis on communication and expectation management by the People’s Bank of China could be a response to the tightening of monetary policies and the need to stabilize confidence in the financial market. Expectation management is the process of guiding public expectations closer to policy goals by strengthening information communication with the public, thereby improving policy efficiency.
International practice has shown that expectation management is a useful supplement to the monetary policy systems of various countries. Central banks of many countries, including the Federal Reserve, use “forward guidance” flexibly to release policy signals, which can improve the effectiveness of monetary policy regulation.
The decision by the People’s Bank of China to emphasize “prediction” and manage expectations is a significant development in the realm of monetary policy. It will be interesting to see how this new approach will impact the financial market and the overall economy in the coming months.
(Source: Shanghai Securities News)