eBusiness Weekly
The People’s Bank of China pledged to make sure interest rates are appropriate and that credit remains stable, as it draws lessons from the Silicon Valley Bank crisis.
“We need to pay serious attention to interest rate risks,” said Zou Lan, head of the monetary policy department. The PBOC will “maintain reasonable growth in credit and money, and make sure interest rate levels are appropriate,” he added.
China has implemented a prudent monetary policy that has prevented drastic movement in interest rates, he said. Last month PBOC Deputy Governor Xuan Changneng blamed the rapid rise in interest rates elsewhere for hurting global financial stability and causing the collapse of Silicon Valley Bank, which has roiled global financial markets.
Central bank officials also sought to soothe concerns about the conflicting signals from rapidly rising credit and slowing inflation. Overall credit expanded quickly in March, even as consumer inflation slowed to 0.7%, triggering worries about insufficient domestic demand.
“China’s consumer prices are rising mildly currently,” said Zou, adding that economic growth in the country has created a situation that is “obviously different from disinflation.”
It takes time for policy support on the supply side to pass onto the demand side, and inflation will likely trend higher later this year toward the average level in recent years, he said.
Markets are watching closely how the PBOC will respond to the rapid expansion in credit, which has exceeded expectations for three straight months. There are concerns that the money is staying in the financial system instead of flowing into the real economy.
In a sign that authorities are taking time to evaluate the effects of previous stimulus, the amount of new one year loans made by the central bank this week was the smallest since November.
Forceful, targeted policy
Central bank officials also reiterated a promise to keep policy forceful and targeted during the briefing.
The PBOC has not taken steps toward major stimulus measures this year, refraining from cutting interest rates, but instead lowering the reserve requirement ratio for banks in March to inject long-term liquidity into the banking system. The central bank last cut the interest rate on its one-year policy loans in August 2022.
China’s economic recovery is strengthening, underpinned by consumer spending and a rebound in the property market. Growth accelerated to 4.5% in the first quarter, putting Beijing on track to meet its growth goal of about 5% this year, and PBOC Governor Yi Gang saying earlier this month that China is expected to achieve that target as the property market improves.
The bank is increasingly using what it terms “structural tools” to provide cheaper loans and other incentives for specific purposes such as urban regeneration, and supporting innovation, small business and green investment. The outstanding amount of those tools was 6.8 trillion yuan ($988 billion) in the first quarter, according to Zou, up from 6.4 trillion yuan at the end of 2022, PBOC data show.
Most of the programs are temporary and will end when their objectives are fulfilled, Zou said. The exit will be an orderly and gradual process, he added — Bloomberg
