PBOC, US Fed ex­change ideas

China Daily (Canada) - - ACROSS AMERICAS - By ZHENG YANGPENG in Bei­jing zhengyang­peng@chi­nadaily. com.cn

A top Chi­nese cen­tral banker ex­pressed con­cern over a pos­si­ble US Fed­eral Re­serve in­ter­est rate in­crease, while his US coun­ter­part as­sured that the pace of pol­icy nor­mal­iza­tion is “likely to be grad­ual”.

In an ex­change of pol­icy stance, Chen Yulu, vice-gov­er­nor of Peo­ple’s Bank of China, ex­pressed his worry that a fur­ther Fed rate in­crease, at a time that most economies are cut­ting rates, might widen the in­ter­est rate gap and fur­ther strengthen the US dol­lar.

“As the dol­lar gets stronger, emerg­ing economies might face mu­tu­ally re­in­forc­ing cur­rency de­pre­ci­a­tion and cap­i­tal out­flow. Plung­ing com­mod­ity prices might com­pound their dif­fi­cul­ties,” Chen said. “In a strong dol­lar cy­cle, if emerg­ing economies didn’t han­dle their for­eign debt-in­curred risks well, it could trig­ger fi­nan­cial tur­bu­lence in cer­tain emerg­ing economies, or even a re­gional fi­nan­cial cri­sis.”

In the same fo­rum — the Peo­ple’s Bank of China-Fed­eral Re­serve Bank of New York Joint Sym­po­sium, in Hangzhou — Chen’s coun­ter­part, Wil­liam Dudley, pres­i­dent of the Fed­eral Re­serve Bank of New York, said that the re­cent fi­nan­cial tur­moil took place a while af­ter the Fed’s first rate in­crease in De­cem­ber.

“The re­cent episode ap­pears to largely re­flect con­cerns about risks em­a­nat­ing from emerg­ing mar­kets them­selves, rather than con­cerns about the di­rec­tion of Fed pol­icy,” he said.

He at­trib­uted re­cent volatil­ity to the broad slow­down in emerg­ing economies, credit ex­pan­sion in th­ese economies and China’s eco­nomic tran­si­tion, which in­volves slower growth.

“Eco­nomic tran­si­tions are al­ways dif­fi­cult to man­age and in­vari­ably present pol­i­cy­mak­ers with un­ex­pected chal­lenges. It is not sur­pris­ing, then, that mar­ket par­tic­i­pants are fo­cused on the risk that the down­shift in Chi­nese growth could prove to be more pro­nounced than an­tic­i­pated,” he said. “I want to be clear. The re­bal­anc­ing process now un­der­way in China is both nec­es­sary and ap­pro­pri­ate, and will un­fold over a pe­riod of years.”

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