BusinessPostCorner.com
No Result
View All Result
Sunday, July 6, 2025
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources
BusinessPostCorner.com
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources
No Result
View All Result
BusinessPostCorner.com
No Result
View All Result

China’s central bank plans policy overhaul as pressure mounts on economy

January 3, 2025
in Finance
Reading Time: 4 mins read
A A
0
China’s central bank plans policy overhaul as pressure mounts on economy
ShareShareShareShareShare

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The People’s Bank of China plans to cut interest rates this year as it makes a historic shift to a more orthodox monetary policy to bring it closer into line with the US Federal Reserve and the European Central Bank.

In comments to the Financial Times, the Chinese central bank said it was likely it would cut interest rates from the current level of 1.5 per cent “at an appropriate time” in 2025.

It added that it would prioritise “the role of interest rate adjustments” and move away from “quantitative objectives” for loan growth in what would amount to a transformation of Chinese monetary policy.

Most central banks, such as the Fed, have only one policy variable, the benchmark interest rate, which they use to influence demand for credit and activity in the economy.

The PBoC by contrast not only sets a multitude of different interest rates but also gives unofficial guidance to banks on how much they should expand their loan books.

While such guidance was its most important tool in managing the economy for decades — as loans were steered to high-growth sectors such as manufacturing, technology and property — officials within the PBoC believe reform is now urgent.

“Rate reform is likely to be the true focus of the PBoC in 2025,” said Richard Xu, chief China financial analyst with Morgan Stanley in Hong Kong. “China’s economic development urgently needs to shift from a mindset focused solely on expanding the market size [of banks’ loan books].”

Demand for credit has collapsed due to a prolonged property market slowdown. The PBoC also fears that credit growth targets lead to indiscriminate lending without consideration for risk, which is wasteful in the long run.

“Aligning with the requirements of high-quality development, these quantitative targets have been phased out in recent years,” said the central bank. “The PBoC will pay more attention to the role of interest rate control, and improve the formation and transmission of market-oriented interest rates.”

As part of the change in regime, the PBoC clarified last year that its main policy instrument would be the seven-day reverse repo rate rather than the host of interest rates it has relied on to date.

A reduced emphasis on targets for credit growth could rein in the rampant overcapacity in China that has led to bad debts at home and disruption to global industries such as steel.

But the central bank has been struggling to implement its shift towards interest rates because the government wants to channel money to the high-tech and manufacturing sectors, which is easier under the old system of credit expansion.

Even as it tries to make a structural change in policy, the PBoC is also under pressure to reflate China’s economy.

During 2024, as part of the most aggressive stimulus package since the Covid-19 pandemic, the central bank cut the seven-day rate twice and a five-year rate that influences mortgage prices three times.

The moves came in the context of President Xi Jinping’s pledge to achieve economic growth of 5 per cent despite troubles in China’s property sector and trade tensions with the US.

Recommended

PBoC governor Pan Gongsheng and his predecessors Yi Gang and Zhou Xiaochuan have pushed for risk-based pricing of loans in recent meetings with officials from some of China’s biggest banks, according to attendees.

Bankers at the meetings warned of possible confusion when pricing longer-term loans since the market is accustomed to guidance from the PBoC, highlighting the challenge of moving to the new system. 

For international investors, if the PBoC is successful, then Chinese monetary policy will start to resemble the system they are used to in the US, Europe or Japan.

For the first time in two decades, the central bank also bought government bonds in the open market to inject money into the financial system in 2024, in the same way that the Fed conducts its policy.

Analysts said the PBoC still lacks some essential ingredients for a system based on interest rates, such as a schedule of routine, publicly disclosed meetings to make policy decisions.

Without such guidance, “market participants might find themselves guessing what will happen next”, said Haibin Zhu, China economist at JPMorgan Chase.

Credit: Source link

ShareTweetSendPinShare
Previous Post

Court strikes down US net neutrality rules

Next Post

Sweden’s green industry hopes hit by Northvolt woes

Next Post
Sweden’s green industry hopes hit by Northvolt woes

Sweden's green industry hopes hit by Northvolt woes

US banks announce big shareholder payouts as Fed eases stress tests

US banks announce big shareholder payouts as Fed eases stress tests

July 1, 2025
Tether Targets South America’s Surplus Power for Low-Carbon Bitcoin Mining – But Will Volatility Bite?

Tether Targets South America’s Surplus Power for Low-Carbon Bitcoin Mining – But Will Volatility Bite?

July 3, 2025
Senate GOP restores Medicaid cuts to Trump tax package

Senate GOP restores Medicaid cuts to Trump tax package

June 29, 2025
Jeremy Corbyn confirms plans to form new party

Jeremy Corbyn confirms plans to form new party

July 4, 2025
Trump’s July 9 tariff deadline is triggering market anxiety, says top analyst

Trump’s July 9 tariff deadline is triggering market anxiety, says top analyst

July 3, 2025
Why check fraud is on the rise in 2025 and tech’s response

Why check fraud is on the rise in 2025 and tech’s response

July 2, 2025
BusinessPostCorner.com

BusinessPostCorner.com is an online news portal that aims to share the latest news about following topics: Accounting, Tax, Business, Finance, Crypto, Management, Human resources and Marketing. Feel free to get in touch with us!

Recent News

Trump officials keep up tariff pressure but hint at flexibility on deadline

Trump officials keep up tariff pressure but hint at flexibility on deadline

July 6, 2025
Red Sea ship hit by multiple assaults in apparent step-up in Houthi tactics

Red Sea ship hit by multiple assaults in apparent step-up in Houthi tactics

July 6, 2025

Our Newsletter!

Loading
  • Contact Us
  • Privacy Policy
  • Terms of Use
  • DMCA

© 2023 businesspostcorner.com - All Rights Reserved!

No Result
View All Result
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources

© 2023 businesspostcorner.com - All Rights Reserved!