By Fan Jianjun, General Office of DRC

From November of last year till now, the central bank has lowered benchmark deposit and lending interest rates for six times in a row. However, in terms of monthly data, the weighted average Shanghai interbank offered rate from January to September this year has undergone a roller-skater trajectory of rising, lowering and rising again. One of the reasons why current monetary policies are difficult to be transmitted to market interest rates, in the judgment of the author, is possibly that the broad money M2 growth rate is taken as the intermediate target for monetary policy macro-control. The author holds that M2 is not suitable to be the intermediate target. First, if we do this, it is necessary to attribute different monetary weights according to the duration and interest rate level of each deposit and to make dynamic adjustments; otherwise, the totaled statistics results are likely to overestimate the money stock—yet it is highly difficult to do these in real operation. Second, with increased domestic financial market transactions and continued expansion of the use of RMB internationally, divergence on broad money M2 between domestic financial market and international commodity and financial markets has become increasingly evident. Western countries mostly adopt the CPI index as the alternative indicator for evaluating and judging inflation levels. However, the CPI index is not suitable to be the inflation index of such a developing country as China. First, China's consumption takes up a much too small proportion in GDP, making consumption price changes unable to reflect the general price level shifts; second, before the accomplishment of urbanization process, China's consumption price index will always face pressure from structural increase in prices of food and consumer services. Under current circumstances, it is suggested that the central bank make major adjustments on China's monetary policy macro-control framework. We should, while giving up the M2 growth rate target, adopt Shanghai interbank overnight lending rate or overnight repurchase rate as our monetary policy intermediate targets.