New PBOC Governor Will Focus on China’s Domestic Economy When Setting Rates: State Media

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One of China’s leading state-owned financial publications says recently appointed central bank governor Yi Gang will focus on the domestic economy when adjusting interest rates, as opposed to the actions of the US Federal Reserve.

Securities Daily reports that while the actions of the US Federal Reserve have been a consideration for the People’s Bank of China’s own interest rate adjustments, the country’s own economic conditions have served as the primary influence upon policy.

“Looking at the intentions behind the last three upward adjustments in open market operations rates by the central bank, responding to US Fed rate hikes was certainly a factor, but the main factor was obviously the needs of the domestic economy and financial markets,” writes Yan Yue (阎 岳) in an opinion piece entitled “Yi Gang’s Appointment Faces Its First Test” (易纲转正迎来第一考).

“For example narrowing of the spread between money market and OMO rates, in order to give the market rational interest rate predictions, and reduce leverage.”

While PBOC may have raised the 7-day repo rate by five basis points in the wake of the Fed’s latest rate hike, Yan expects the Chinese central bank to continue to focus on the domestic economy when making future adjustments under Yi Gang.

“With regard to Fed rate hikes, Yi Gang said during this year’s Two Sessions that China’s monetary policy mainly relies upon the domestic economy and financial conditions when making comprehensive assessments.

“In dealing with Fed rate hikes, Yi Gang will continue to make [China] the main focus, and if it impacts the stability of the domestic economy or finance sector, then action will be taken in accordance with circumstance.

“With regard to what methods will be adopted to deal with Fed rate hikes, we need to look at domestic needs, because after all our monetary policy tool box has many instruments that can be adopted for use at any time.

“Yi Gang has stressed that this year China’s CPI is likely to remain within the golden band of 2% to 3%, so monetary policy will remain stable and neutral, and neither tight nor loose.

“This can both maintain healthy and stable economic growth, as well as prevent the risk of inflation and asset bubbles.”

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