Caixin OnlineOpinionCommentaries Powerful New Tool for Keeping Interest Rates Steady and Low
01.28.2013 17:54

Powerful New Tool for Keeping Interest Rates Steady and Low

The central bank's use of Short-term Liquidity Operation to regulate credit supply amounts to quantitative easing on a small scale
By Xu Hanfei

The central bank has said it would use Short-term Liquidity Operation (SLO) to supplement existing open market operations in regulating credit supply.

The move merits attention for four reasons.

First, it enhanced the central bank's flexibility when using open market operations to deal with a more volatile liquidity environment. Before SLO, the bank had only three tools in open market operations: central bills (which mature in three months to three years), repurchase agreements (seven to 182 days) and reverse repurchase agreements (five to 28 days).

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