A Research Into The Choice Of PBC's Benchmark Interest Rate

Financial liberalization was launched in the 1970s and turned into a worldwide tide in the next ten years. As one of the most important parts of financial liberalization in the countries and a more effective way of allocating resources, interest rate liberalization is the process of deregulating the interest rate system and letting interest rate determined by the supply and demand of money, which inherently demands a benchmark interest rate.According to international experience, rising actual interest rate usually appears immediately after completing interest rate liberalization, hereafter unstable banking system and macro economy. In consideration of the possible financial risk after interest rate liberalization and currency authority's indirect regulation, it is very important for the currency authority to choose a suitable benchmark interest rate. This article is a research into the choice of PBC's benchmark interest rate after a series of analysis among our money market rates, combining the successful experience of developed market economy.This article consists of the introduction and three chapters.The introduction is mainly about the research background, methodology, logical thread and structure of this article. The definition of benchmark interest rate is discussed, therefore some general principles of choosing benchmark interest rate is derived in Chapter 1. Detailed discussion on money market rates is presented both theoretically and empirically after reviewing China's practice on choosing PBC's benchmark interest rate in Chapter 2. The conclusion of this article is presented in Chapter3, which believes that inter-bank repo rate is the best candidate as PBC's benchmark interest rate at present and makes further discussion on improving inter-bank repo market.