China will be ‘more considerate’ when formulating economic policy
Print Edition
CHINA still has room for multiple monetary policy instruments to address downside risks, the head of its central bank said yesterday, hinting at further moves to steady the markets and reinforcing his commitment to financial reform.
“We should make policies that are more considerate of the spillover effects on global markets, but that doesn’t mean we should be overcautious about new measures and reform,” Zhou Xiaochuan, governor of the People’s Bank of China, told a media conference in Shanghai yesterday ahead of the meeting of G20 finance ministers and central bank governors.
In a statement issued before Zhou’s speech, the central bank described its current monetary policy as “prudent and relatively accommodative.”
It added that the country is trying to improve its monetary policy framework, through the use of price-based rather than quantitative measures, like interest rates.
“Interest rates will play a more important role in our monetary policy,” Zhou said.
In the meantime, fiscal policy will be “more proactive,” including cutting taxes, the statement said.
In an effort to counter the economic slowdown, China’s central bank has cut benchmark interest rates five times since November 2014 and lowered banks’ reserve requirement ratio three times since February last year.
Market watchers have forecast more of the same for this year.
In response to questions regarding China’s currency exchange rate and record capital outflows, Zhou said there was “no basis for persistent yuan depreciation” and that the decline in foreign exchange reserves was only temporary.
China won’t use competitive depreciation to boost exports, despite data showing that exports in January fell for a seventh straight month, he said.
He also implied that exchange rates would not be the main topic under discussion at the two-day G20 meeting.
China’s foreign reserves fell by US$512.7 billion last year and stood at US$3.23 trillion at the end of January.
Much of last year’s decline was due to a rise in selling pressure on the yuan after the introduction in August of a new forex calculation mechanism designed to make the determination of the rate more market-based.
“The market is influenced by short-term factors, but the central bank takes a long-term view on the movements of the exchange rate,” Zhou said.
“There’s nothing to worry about with regards to China’s external payment ability,” he said.
As long as the country’s economic fundamentals are sound and the exchange rate is around the equilibrium level, expectations about the country’s foreign reserves will become more rational, he said.
The governor also dismissed concerns that recent reduction of the minimum down payment for residential mortgages was designed to boost bank lending, as the total in January rose more than 60 percent year on year to 2.5 trillion yuan (US$382.4 billion).
“The rapid growth of housing loans seems to add risk to the financial market, but if you look at it in terms of its share of total credit, mortgages account for only a little over 10 percent of the total social financing,” he said.
“The main task for the PBOC is controlling corporate and local government debt,” he said.
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