Based on both western scholars'study such as Taylor on a monetary policy reaction function and Chinese condition,this article makes a new forward—looking monetary policy reaction function,in terms of market interest rate(inter-bank borrowing rate), regulated interest rate(rate of deposit and loan)and interest rate spread.According to the result from testing its applicability in Chinese monetary po licy,we find that on the one han d,the function can well describe the specific path of inter-bank bo rrowing rate,rate of deposit an d loan ,and spread,ofer referring criterion for mak ing monetary policy and measure the degree oftightness for monetary po licy;on the other hand,the result of test reflects tIIat all of the three kinds of interest rate have an insumcient respond to inflation and output,which indicates that monetary policy of China is an instable monetary po licy rule.

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