China's Monetary Policy in 2017

来源: CHINA FOREX 2017 Issue 1 作者:Shen Jiangguang

China's central bank is increasingly demonstrating a neutral to tight monetary stance. It has raised short-and long-term interest rates,though not benchmark rates,and liquidity has been tightened. What are the reasons behind the current tightening by the central bank? What is the impact on financial markets and the real economy? And what changes in monetary policy could we see in the not-too-distant future?

The above-mentioned issues have been discussed in an article entitled "Development,Challenges and Prospects for Monetary Policy" in China Finance magazine written by Zhang Xiaohui,the assistant to the governor of the People's Bank of China. The article,as well as the central bank's annual work conference in early 2017,presents the following thoughts.

Addressing asset bubbles is an important consideration in monetary tightening. There are many monetary policy objectives,but risk prevention appears to be the primary one. On one hand,China's economy has had a positive performance,with less downward pressure on growth,since the third quarter of last year. But during the first three quarters of last year,the sharp rise in asset prices meant there were growing risks from asset bubbles. At last year's central economic work conference,the nation's economic decision-makers insisted that homes should be for dwelling and not speculation. Zhang Xiaohui wrote in his article that what has been dubbed a sound monetary policy was rolled out six years ago,and that initially it was a neutral to loose stance. It is understandable that the policy would later move towards tightening in order to prevent risk. It can be said that there is a consensus on the need to reduce bubbles in the real estate sector.

Pressure from US economic policies is also a monetary policy consideration. Zhang Xiaohui mentioned in his article that given the effects on monetary policy from external developments,more attention must be given to protecting the real economy from the impact of currency mismatches and large-scale capital movements. The author believes that with US President Trump's aggressive stance on trade,particularly with China,the People's Bank of China may adopt short-term measures to stabilize the exchange rate and prevent large-scale capital outflows as well as financial risk. The central bank might even sacrifice some monetary policy independence to obtain this objective.

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