PBOC may use new tools to prop up local govt bonds

Short-term Liquidity Operations

Started in the fourth quarter of 2013 as a supplementary tool of open market operation. The PBOC will adjust the timing, duration and collaterals based on monetary policies, liquidity conditions in banking system, and money market rates.

Pledged Supplementary Lending

This is a collateralized form of on-lending facility that became effective in the third quarter of 2014. It allows the central bank to improve credit allocation through targeted liquidity provision.

Medium-term Lending Facility

MLF, introduced in September, 2014, is a monetary policy tool to supply base money over medium term, improve liquidity management, and guide market interest rates.

On-lending/Relending

Effective since 1984, this refers to the loans issued by the PBOC to financial institutions. It is used to adjust overall credit growth and improve credit allocation. There are four types of on lending, created to provide liquidity, provide credit support, ensure financial stability, and provide loans for special projects, respectively.

－PBOC, UBS