China’s Central Bank Bids to Join the Grown-Ups

(Bloomberg Opinion) -- Set your alarms for 9:30 a.m., Beijing time, on the 20th of every month.

The community of central bank watchers, not to mention China's domestic economy and the global environment it helps shape, just got a new benchmark. Or, at the very least, a long overdue additional reference point for figuring out where the world is going.

That's the time and day that the People's Bank of China will announce its new loan prime rate. The diary entry, beginning Tuesday, is part a package of changes to the structure of interest rates that the PBOC hopes will ultimately allow lower borrowing costs to flow through to companies.

The timing might just turn out to be the most significant part of the whole endeavor. For years, people have wanted China to become more transparent about its policy settings, in line with Western peers. Things have been heading that way, but the main levers to shape the price of money and, by implication, the direction of the economy have been communicated in haphazard fashion. This appears to be changing and is most welcome.

Despite its growing economic size and clout, China long refrained from specifying a time and date for interest-rate decisions. That set it apart from the Federal Reserve, Bank of Japan, European Central Bank and a score of other institutions of lesser significance in both the developed and emerging world.

That exception became increasingly jarring as China's economy catapulted ahead of Germany and Japan, and predictions proliferated about when it would overtake the U.S. The world grew accustomed to the PBOC announcing changes to the yuan's trading band and other key policy decisions over Christmas holidays or at obscure hours of the weekend. This isn't the way grown-up economies behave.

The central bank appears to concur. Now a significant mechanism to modulate the flow of money in the economy and, by extent, influence the shape of the world will have a bit more transparency and regularity.

Granted, eyeballs have been glued lately on the PBOC's morning yuan fix shortly after 9 a.m. each day, the reference point for trading in the currency. When the PBOC recently allowed it to slip below 7 to the dollar, it was seen as a step of great consequence. The yuan's move, in itself was tiny, but because of the psychology of a round number and the way President Donald Trump rants about China's markets, the baby step reverberated in asset markets the world over and got China branded a “currency manipulator” by the U.S. Treasury.

Now eyes will be on an interest rate at 9:30 a.m. every four weeks. Might as well keep them there after the yuan fix minutes earlier. Whether the prime rate becomes, in time, the de facto primary benchmark rate for China will be one of the more fascinating aspects of the new regime.

It's absurd the amount of attention that’s devoted to Bank of England or European Central Bank deliberations relative to the People's Bank of China. The clarity and method of messaging explains at large part of that lopsidedness.

A humble diary note this past weekend just might change a lot.

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

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