Chinese Central Bank Chief Commits to “Vigorous” Monetary Policy to Support Economic Recovery

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The head of the People’s Bank of China (PBOC) has committed to “vigorous” monetary policy measures to support the recovery of the Chinese economy.

“Since the start of the year, as a result of the pandemic, external shocks and other factors, the Chinese economy has faced definite downwards pressure,” said PBOC governor Yi Gang (易纲), according to a statement made by PBOC on 27 June.

“Monetary policy will continue to exert vigour in quantitive terms to support economic recovery.

“At the same time, we will also focus on the effective usage of structured monetary policy tools to support micro-and-small enterprises and green transformation.

“China’s inflation prospects are quite stable, with year-on-year (YoY) growth in CPI at 2.1% and PPI growth at 6.4%.Maintaining price stability and employment maximisation are our work focal points.

Yi highlighted the success of ongoing marketisation reforms of China’s interest rate regime.

“Over the past ten years, China’s market interest rate levels have declined amidst stability, and natural interest rate levels are mainly determined by the marginal productivity of capital and long-term population growth trends,” he said.

“The central bank uses monetary policy tools to guide market interest rates, and at present the fixed deposit rate is around 1 – 2%, and the bank loan rate is approximately 4 – 5%.

“At the same time the bond and share markets are operating quite effectively, and given inflation levels, we can see that the real interest rate is quite low, and financial markets are able to effectively allocate resources.”

Yi also stressed efforts to drive the growth of green finance in China.

“With regard to monetary policy, a central bank’s most important duty is to maintain price stability….however, some central banks still have policy room to use structural monetary policy to expedite green transformation,” he said.

“PBOC has engaged in great work to drive green transformation…in 2018 we included high-quality green bonds and loans in the scope of qualified collateral for medium-term lending facilities.

“Last year we unveiled two new monetary policy tools – the carbon emissions reduction tool and clean carbon specialist reloans, whose interest rates are both at 1.75%, to support qualified financial institutions to provide low-cost financing to projects with pronounced carbon reduction effects.”

As of the end of May PBOC had extended over 210 billion yuan in funds via the two instrument, driving CO2 reductions of around 60 million tons.

As of the end of March China’s green loan balance exceeded 18 trillion yuan, while the domestic green bond balance was around 1.3 trillion yuan, ranking amongst the first in the world.