PBOC may continue to use directional easing measures

To lower financing costs for the year.

Based on the PBOC’s second-quarter monetary report issued recently, the current high cost of financing is a structural problem which cannot be solved completely through monetary policy. According to a research report from CCB International, the report also states that flows of directional easing measures have detrimental side effects if the central bank uses it regularly over the long term.

In line with this, the report noted that it believes PBOC is not likely to use such measures regularly in the future.

However, in the short term, the central bank has to rely on structural monetary policy to try to reduce financing costs.

CCB International believes the PBOC may expand the use of pledged supplementary lending (PSL) in the remaining months of the year as a way to guide mid-to-long term interest rates.