The People’s Bank of China has announced that it will hold the course of prudent neutral monetary policy, while making recourse to a range of monetary policy tools to ensure that liquidity remains stable.
PBOC’s monetary policy committee held is 2017 second quarter regular meeting in Beijing on Tuesday, where it reiterated its commitment to stable monetary policy as well as liquidity levels.
Against the background of a concerted deleveraging campaign pursued by Chinese financial regulator since last year, the mercurial nature of the central bank’s recent actions has left many observers perplexed.
When PBOC made injections 540 billion yuan into the monetary system during the first half of June via repos, some observers interpreted the move as a moderation of China’s deleveraging campaign.
PBOC abruptly withdrew from further open market operations , however, leading to net contraction of 500 billion yuan towards the end of June, and triggering jitters about liquidity prospects in July.
PBOC has said that its actions are intended to maintain liquidity and access to funds for the real economy as financial deleverage continues.
According to PBOC’s monetary policy committee China’s economic and financial sectors are enjoying a steady performance in general, yet confront “complex” circumstances, with the global economy still undergoing far-reaching adjustments in the aftermath of the GFC, and recovery still ongoing in many major advance economies.
Some emerging economies continue to face challenges, while international financial markets continue to harbour hidden risk.
The committee emphasised the need to closely follow changes in international capital flows, adapt to new economic development trends, maintain basic liquidity stability, as well as guide rational growth in money, credit and social financing.
It also called for an “optimisation” of the finance and credit structure, which will involve an increase in the proportion of direct financing, as well as further marketisation of interest rates and reforms to RMB exchange rate mechanisms.