In its monetary policy report for the third quarter, the PBOC pledged to maintain a 'stable and prudent' monetary stance warned against loosening of the policy. It also warned of the growth of interbank business and signaled that domestic economy would face risks of deleveraging and overcapacity. Meanwhile, Chinese Premier Li Keqiang maintained the GDP growth target of 7.5% for this year but weak exports would pose downside risks. In short, Premier Li stated that the government is 'not seeking high-speed growth, and definitely not seeking only GDP growth'. He reiterated that the government would strive to ensure 'a reasonable speed in growth'.
The PBOC reiterated that its top priorities are 1) to use a variety of monetary policy tools to manage banking system liquidity, and keep TSF and loans growing at a reasonable and proper pace; 2) to continue to optimize the usage of financial resources, increase the efficiency of TSF stock, and support small and micro enterprises (MSEs) and rural finance; and 3) to continue to improve efficiency of the market-based mechanism and monetary policy transmission mechanism through financial reforms, to better support a healthy and sustainable economic growth. Concerning the domestic economic outlook, the PBOC acknowledged that 'the economy may experience a relatively long period of deleveraging and dealing with overcapacity'. Note that this was the first time that the Chinese government has described the economy as facing deleveraging.
The central bank mentioned that the increase in interbank assets, FX purchases and new loans have been the three key factors in driving growth of China's money supply (M2). Therefore, it pledged to improve interbank business regulations for standardizing and increasing the transparency of the interbank products. Indeed, local press also reported that the CBRC would implement a number of measures to regulate interbank business. These measures are 1) limiting the total investment amount, including banks' principle investment and off-balance sheet WMPs, into non-standard credit assets (NSCAs); 2) potentially suspending interbank third-party reverse repos; and 3) requiring provisions for NSCAs.
Reported earlier in the day, China's trade surplus widened to US$ 31.1B in October from US$ 15.2B a month ago. The market had anticipated a rise to US$ 22.3B. From a year ago, trade surplus narrowed US$ 0.96B as export growth of +6.5% was outpaced by import growth of +7.6%. Regarding exports, the PBOC also noted that the old growth model, hinging on exports and public spending should be. Yet, it was concerned about the gap as a new growth model is yet to be developed.
On the monetary outlook, it appears that the government would gradually shift towards tightening while the PBOC reiterated its neutral stance. Despite the decline in recent days, the 7-day repo rate had been on the rise, peaking at 5.69% compared with an average of about 4% over the last 3 months. This raised concerns that the central bank might refrain from injecting liquidity to the market. Tightening might increase further if inflation picks up.
The PBOC reiterated that its top priorities are 1) to use a variety of monetary policy tools to manage banking system liquidity, and keep TSF and loans growing at a reasonable and proper pace; 2) to continue to optimize the usage of financial resources, increase the efficiency of TSF stock, and support small and micro enterprises (MSEs) and rural finance; and 3) to continue to improve efficiency of the market-based mechanism and monetary policy transmission mechanism through financial reforms, to better support a healthy and sustainable economic growth. Concerning the domestic economic outlook, the PBOC acknowledged that 'the economy may experience a relatively long period of deleveraging and dealing with overcapacity'. Note that this was the first time that the Chinese government has described the economy as facing deleveraging.
The central bank mentioned that the increase in interbank assets, FX purchases and new loans have been the three key factors in driving growth of China's money supply (M2). Therefore, it pledged to improve interbank business regulations for standardizing and increasing the transparency of the interbank products. Indeed, local press also reported that the CBRC would implement a number of measures to regulate interbank business. These measures are 1) limiting the total investment amount, including banks' principle investment and off-balance sheet WMPs, into non-standard credit assets (NSCAs); 2) potentially suspending interbank third-party reverse repos; and 3) requiring provisions for NSCAs.
Reported earlier in the day, China's trade surplus widened to US$ 31.1B in October from US$ 15.2B a month ago. The market had anticipated a rise to US$ 22.3B. From a year ago, trade surplus narrowed US$ 0.96B as export growth of +6.5% was outpaced by import growth of +7.6%. Regarding exports, the PBOC also noted that the old growth model, hinging on exports and public spending should be. Yet, it was concerned about the gap as a new growth model is yet to be developed.
On the monetary outlook, it appears that the government would gradually shift towards tightening while the PBOC reiterated its neutral stance. Despite the decline in recent days, the 7-day repo rate had been on the rise, peaking at 5.69% compared with an average of about 4% over the last 3 months. This raised concerns that the central bank might refrain from injecting liquidity to the market. Tightening might increase further if inflation picks up.
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