China’s PBOC is watching ‘accelerated’ monetary tightening overseas

Shaun H. Ruff


The People’s Bank of China said M2, a broad measure of readily available money supply including cash and mutual funds, grew by 11.4% year-on-year in June, the fastest pace since November 2016, according to Reuters.

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BEIJING — China’s central bank said Wednesday it’s closely watching monetary policy tightening abroad, without signaling interest rate changes at home.

“We are paying very close attention to major economies’ accelerated monetary policy tightening,” Zou Lan, head of monetary policy at the People’s Bank of China, told reporters in Mandarin, according to a CNBC translation.

He did not name specific countries.

From the U.S. to Singapore, many central banks have swiftly tightened monetary policy in the last month or so, with Japan and China being notable exceptions. As of June, the Council on Foreign Relations’ monthly index of global monetary policy stood at a relatively tight 3.99 — up sharply from negative 8.7 in December. Zero denotes neutral policy.

Zou said the PBOC has taken precautions against any negative spillover from other central banks’ actions. Those measures include adjusting the level of foreign currency banks need to have on hand, and managing cross-border capital flows, he said.

But Zou emphasized China’s monetary policy is mainly driven by the domestic situation.

He described liquidity in China as “sufficient but slightly excessive” — indicating little need for rate cuts. He said the PBOC would “continue to implement prudent monetary policy,” and noted the central bank’s support for bonds to develop infrastructure.

Looking ahead, he said “hard work” is needed for economic stability, while monitoring inflation.

Zou and other PBOC policymakers speaking Wednesday described the impact of Covid and the “Russia-Ukraine conflict” as “greater than expected,” while noting how China’s economy has started to recover in the last two months.

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The world’s second-largest economy is expected Friday to report muted growth of 1% in the second quarter, according to a Reuters poll.

The spread of the highly transmissible omicron Covid variant forced the metropolis of Shanghai to lock down in April and May, while other major economic hubs have had to impose intermittent travel and business restrictions since March.

Central banks rush to raise rates

The U.S. Federal Reserve raised interest rates last month by the most since 1994 — and promised an “unconditional” approach to taming 40-year highs in inflation.

The European Central Bank said it planned to raise interest rates at its July 21 meeting.

Singapore’s central bank unexpectedly raised rates Thursday, following an unprecedently large rate hike by South Korea on Wednesday. New Zealand’s central bank also hiked rates Wednesday.

Last month, Switzerland’s central bank raised rates for the first time in 15 years.

G-20 finance leaders are set to hold a regular meeting Friday and Saturday in Bali, Indonesia.


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