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Mr Tang outlined five broad sets of signals for interpreting policy intent:
1) The PBOC’s “official taxonomy,” such as calling for a prudent and neutral policy stance, released quarterly and typically set at the year-end Central Economic Work Conference.
2) The tone of irregular official comments, with rare deviations from the party line indicating a strong signal.
3) Quantitative liquidity indicators, such open market operations or changes to the Medium-term Lending Facility targeted lending programme.
4) Interbank rate spreads, which reflect financial leverage and influence the policy bias.
5) The repo rate that covers only banks can reflect the policy stance more accurately than the general 7-day repo rate, and gravitates toward it over time, Mr Tang said. High-level actions like changes in the benchmark rate or required bank reserves.
“These various sets of signals each offer a different perspective, and are best pieced together to provide a more comprehensive read of policy intent,” Mr Tang said. “Most recently, the RRR news in isolation is a dovish hint,” but other indicators such as liquidity operations and signs of financial leverage “would be useful supplementary signals to watch.”