PBOC to normalize policy as economy recovers

Business | Bloomberg and Reuters 30 Sep 2020

China's central bank is seeking to normalize monetary policy as the "economy recovers steadily," in another sign that the country's policymakers are gradually pulling back from the stimulus measures enacted amid the Covid-19 pandemic.

The People's Bank of China will make monetary policy more precise and targeted, it said Monday in a statement after the quarterly policy meeting. The PBOC called on banks to make full use of structured monetary tools to increase the "directness" of its policies and vowed to achieve a long-term balance between stabilizing growth and preventing risks.

Meanwhile, Chinese commercial banks have made rare cuts to their foreign currency deposit rates in recent weeks. The move is expected to encourage Chinese companies and households to covert their often large foreign currency holdings to yuan and dampen speculative purchases of foreign currencies, analysts said.

The one-year dollar deposit rate at all of China's "big five" state banks now stands at 0.35 percent which compares with levels of 0.75-0.8 percent previously, according to data from the lenders.

Separately, China will need a plethora of reforms if it is to make a new economic strategy that relies mainly on domestic consumption work, advisers to the Chinese cabinet said yesterday.

President Xi Jinping has proposed a "dual circulation" strategy for the next phase of economic development in which China will rely predominantly on "domestic circulation", to be supported by "international circulation".

Lin Yifu, a second adviser to the cabinet, said China's new economic strategy was not a short-term measure to cope with the COVID-19 pandemic or tension with the United States.

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