Shift seen in cen­tral bank pol­icy stance

China Daily European Weekly - - Business -

Ex­pert: Peo­ple’s Bank of China has be­come more cau­tious on its out­look for the global econ­omy

“im­prove eco­nomic pre­dic­tions and for­ward-look­ing pol­icy fine-tuning”, to main­tain “rea­son­ably ad­e­quate” liq­uid­ity con­di­tions at the same time.

The meet­ing is usu­ally held quar­terly, and the lat­est one was the first gath­er­ing af­ter the com­mit­tee was reshuf­fled in mid-June.

Com­pared with the state­ment it is­sued for the fourth quar­ter of last year, the PBOC has be­come more cau­tious on its global eco­nomic out­look, and has soft­ened its tone on delever­ag­ing, says Lu Ting, chief econ­o­mist in China with No­mura Se­cu­ri­ties.

“These changes are in line with re­cent shifts in the PBOC’s pol­icy stance and sup­port our view of more pol­icy eas­ing mea­sures in com­ing months,” ac­cord­ing to Lu, who no­ticed that the govern­ment has be­come in­creas­ingly aware of the dis­rup­tive im­pact delever­ag­ing can have on the econ­omy if it is too fast and ag­gres­sive.

Anx­i­ety over China’s re­cent eco­nomic trends emerged re­cently among some econ­o­mists, given the in­creased ex­ter­nal un­cer­tain fac­tors such as a po­ten­tial Sino-US trade war and cross-bor­der cap­i­tal out­flow pres­sure in emerg­ing mar­ket economies as the US cen­tral bank plans to con­tin­u­ally raise in­ter­est rates.

“Mone­tary pol­icy is not the panacea to solve all of the prob­lems, es­pe­cially as the prob­a­bil­ity of ex­ter­nal shocks is in­creas­ing,” says Xu Zhong, di­rec­tor of the cen­tral bank’s re­search bureau.

Mone­tary pol­icy, he says, places more em­pha­sis on main­tain­ing sta­ble macro en­vi­ron­ment un­der the cir­cum­stances and, above all, it will have lim­ited room for ma­neu­ver to ad­dress po­ten­tial eco­nomic down­side risks.

Too much re­liance on mone­tary pol­icy is likely to con­ceal credit risks when liq­uid­ity is suf­fi­cient, and lower in­vest­ment re­turns could be ne­glected when lend­ing costs are at a low level, ac­cord­ing to the cen­tral bank of­fi­cial.

“That may fi­nally drive the mone­tary en­vi­ron­ment to­ward more eas­ing but do lit­tle to re­struc­ture the econ­omy, or lead to an even worse sit­u­a­tion,” adds Xu, who sug­gests keep­ing mone­tary pol­icy pru­dent and neu­tral and to ef­fec­tively push for­ward the delever­ag­ing process.

Since the sec­ond quar­ter, the cen­tral bank has ac­cel­er­ated pol­icy fine­tun­ing, in­clud­ing an ex­pan­sion of the list of medium-term lend­ing fa­cil­ity qual­i­fy­ing col­lat­eral and a 50-ba­sis­point tar­geted cut of the re­serve re­quire­ment ra­tio which came into ef­fect on July 5.

It seems China’s mone­tary pol­icy is more asyn­chro­nous, while the US Fed­eral Re­serve is grad­u­ally nor­mal­iz­ing its bal­ance sheet and rais­ing pol­icy rates, ac­cord­ing to an­a­lysts.

Cen­tral banks face tough chal­lenges ahead, said the 2018 an­nual eco­nomic re­port is­sued by the Bank for In­ter­na­tional Set­tle­ments. “Only well into the sec­ond quar­ter of 2018 were there signs that a sig­nif­i­cant change could be in the off­ing, es­pe­cially for emerg­ing mar­ket economies.”

The BIS re­port said this high­lights the del­i­cate bal­ance cen­tral banks must strike: mov­ing too slowly in the mone­tary pol­icy nor­mal­iza­tion process could give rise to over­heat­ing and fi­nan­cial sta­bil­ity risks. On the other hand, mov­ing too fast could trig­ger dis­rup­tive mar­ket re­ac­tions and harm eco­nomic re­cov­ery, not least as global debt lev­els rel­a­tive to GDP have con­tin­ued to in­crease and fi­nan­cial mar­ket val­u­a­tions ap­pear stretched.

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