This taciturn style has been bothering people who want to know the direction of China's monetary policy, and it has even reached a more dangerous level recently. Since June, it has been rumored that the central bank has injected 65,438+0.8 trillion yuan (US$ 294 billion) through various targeted liquidity instruments to support the slowing economy. This is a lot of money, and the three months of quantitative easing at the peak of the Federal Reserve's bond purchase program add up to not that much. However, it was not until the beginning of 1 1, that is, half a year after the rumors appeared, that the central bank made some confirmation of its operation, and it was not comprehensive.
To make matters worse, the central bank deliberately chose an incomprehensible way to relax the monetary environment: in short, it only provided some banks with cheaper medium-term loan facilities. The central bank regards this as the first line of defense. Central banks in other countries usually adopt unconventional policies when interest rates fall to near zero. The benchmark interest rate for one-year loans in China is 6% for a long time (165438+10/0/). The People's Bank of China announced on Friday night that the benchmark interest rate for one-year loans was lowered to 5.6%. -translator's note). It would be much better if China could relax its monetary policy through traditional means, that is, cut interest rates.
To be fair, it is also difficult for the central bank to do so. The central bank is the most stringent regulator in China to curb the soaring debt of underground banks. The central bank is worried that cutting interest rates will be interpreted as a U-turn to give up controlling excessive lending, so it prefers to relax secretly.
This is the wrong choice for two reasons. First, the central bank accused that providing liquidity might undermine its own reform plan. By doing so, the central bank does not allocate resources by the market, but decides for itself which banks can benefit from easing and how they should lend. For example, a large part of the injected funds is earmarked for the construction of public housing. This may be a goal that can win applause for the government, but it is not for the central bank.
Second, the effect of the central bank's policy is greatly reduced, because it fails to explain its own trend clearly. The goal of easing is not only to print money and send money to the economy, but to build the confidence of enterprises and consumers. If we can clearly explain what we are doing and why, a country's central bank can guide the market and reduce uncertainty. The recent decline in China's economic growth shows that the central bank is striving to achieve its goal. The interest rate of short-term funds fell, but the real interest rate of bank loans rose.
These shortcomings hurt China's economy, which is also a problem all over the world. Although the pace of China has slowed down, it still contributes a quarter of the global economic growth. After decades of capital control protection, China's financial system has become more and more open. Starting this week, as long as you have a brokerage account in Hong Kong, you can invest in the stocks of the Shanghai Stock Exchange. In addition, more and more places use RMB: French, Nigerian and other central banks now hold China's currency as foreign exchange reserves.
As a central bank with global influence, the People's Bank of China needs to adopt what other central banks have done well, that is, relax the monetary environment transparently and make good use of the power of communication. The People's Bank of China should lower interest rates, clearly explain the reasons for doing so (that is, to prevent deflation from damaging the economy), and promise to implement stricter credit rules once the leverage ratio further rises. Central banks in some countries have developed "forward guidance" into a powerful policy tool. So should the People's Bank of China.