No Irrigation-style Monetary Policy, Inflation Avoidance the Chief Priority: PBOC


The head of the Chinese central bank has sent a slew of signals on near-term monetary policy towards the end of 2020.

Yi Gang, governor of the People’s Bank of China (PBOC), wrote in a recent essay that Chinese monetary policy must “maintain rationally ample liquidity” and “expedite rational growth in the money supply and total social financing.”

PBOC will firmly refrain from engaging in “irrigation flooding,” and the most important aspect of monetary policy will be to ensure that “bank notes that are in the hands of ordinary people do not turn into ‘cents.'”

Yi said that the implementation of regular monetary policy, the maintenance of normal interest rates and a normal yield curve will be of overall benefit to the sustainable growth of the Chinese economy.

For this reason PBOC will “implement regular monetary policy to the greatest extent possible over the long-term,” in order to “expedite rational growth in the savings and incomes of households.”

Domestic analysts believe that given the ongoing recovery of the Chinese economy from the impacts of the COVID-19 pandemic there is little likelihood of further cuts to the required reserve ratio before the end of the year, as well as limited room for interest rate reductions.

Interbank funds are seen remaining tightly balanced in October, with little probability of the cost of funds deviating significantly from policy rates.