PBOC Governor Yi Gang Provides Signals on Chinese Monetary Policy in 2019


The head of the Chinese central bank has provided signals as to the broader direction of monetary policy in 2019 in a speech delivered on 13 December.

“We are currently in the process of shifting from a focus on quantitative adjustments to a focus on price adjustments,” said People’s Bank of China governor Yi Gang according to a report from Cnstock.com.

According to Yi while both adjustments are needed and quantitative adjustments will not be abandoned, price adjustments are on track to become more important than they were in the past.

“Looking at the trend for the past several years, we have basically established an interest rate corridor,” said Yi, whose upper threshold is the Standing Lending Facility (SLF) and whose lower threshold lies between the central bank’s excess reserve rate and the 7-day interbank repo rate for depository institutions.

“At present the market is highly responsible to price-based monetary policy guidance,” said Song Yao (宋垚), a senior executive China Minsheng Bank.

“For example, the average 7-day repo rate fell from 3.3% in the first half of the year to 2.6% in the second half, and this has continued for half a year.”

Ming Ming (明明), chief fixed income analyst with CITIC Securities, said that a rate cut is one likely option next year.

“In the current environment where credit expansion is impeded, the decline in financial market rates created by quantitative easing cannot transform into a decline in financial costs for the real economy,” said Ming.

“It’s difficult to clear out credit channels, making it difficult for quantitative loosening of monetary policy to play a manifest role in stabilising domestic economic performance.

“From this perspective, a rates cut could be one o prion for monetary policy loosening next year.”