Chinese Central Bank Releases Q2 Monetary Policy Execution Report


The Chinese central bank has sent further signals on the future direction of monetary and forex policy in its latest quarterly report, as escalating trade tensions with the United States cast a shadow over economic growth.

The People’s Bank of China’s (PBOC) issued the “2018 Second Quarter China Monetary Policy Execution Report” (2018年第二季度中国货币政策执行报告) on the evening of 10 August, pointing to the need to “maintain the neutrality and appropriateness of stable monetary policy, properly control the sluice gate of the money supply, and firmly refrain from engaging in vigorous, ‘mass irrigation’ style stimulus.”

With regard to forex policy, PBOC said that it would continue to apply the ample range of policy tools with which it already had experience to deal with potential pro-cyclical fluctuations in forex markets, and that when necessary effective measures would be adopted to conduct counter-cyclical adjustments, as well as maintain the basic stability of the renminbi exchange rate at a rationally balanced level.

The Report said that in the near term PBOC would continue to deepen reforms for the marketisation of the exchange rate, maintain the flexibility of the renminbi exchange rate, and make use of price levers to adjust market supply and demand and expedite the self-balancing of forex markets.

According to Report China’s cross-border capital flows and forex supply and demand relations have been balanced in general since 2017, with flexible exchange rate mechanisms playing the role of “automatic stabilisers.”

“China has continually upheld the exchange rate reform direction of marketisation, and greater use of the market as a decisive factor in the formation of exchange rates,” said the Report.

“[We will] not engage in competitive devaluation, or use the renminbi exchange rate as a tool in dealing with trade disputes or other external disturbances.”

With regard to monetary policy, PBOC said that it would flexibly apply a combination of multiple monetary policy tools, employ rational tool combinations and operating rhythms, strengthen forward-looking adjustments and micro-adjustments, preserve rationally ample liquidity, maintain an appropriate volume of total social financing, and effectively balance stable growth, structural adjustment and risk prevention.

The Report also pointed to further strengthening of macro-prudential management and full use of the counter-cylical role of macro-prudential assessments (MPA), as well as appropriate use of its guidance role to drive financial institutions to expand their support for small and micro-enterprises and other members of the real economy.

With regard to credit policy, the Report said that there would be continued optimisation of the channelling and structure of liquidity, strengthening of the role of credit policy in making targeted structural adjustments, and efforts to ensure that finance supports supply-side structural reforms.

The Report called for firm curbs on  growth in hidden debt, appropriate resolution of outstanding bank debt, and maintenance of the lawful rights and interests of creditors.