Ex-PBOC adviser expects China to cut rates further – China Securities Journal

People walk past the headquarters of the PBOC, the central bank, in Beijing
FILE PHOTO: People walk past the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing, China September 28, 2018. REUTERS/Jason Lee

March 14, 2022

SHANGHAI (Reuters) – China will further cut interest rates to stabilise the economy, as shrinking China-U.S. yield spreads won’t change Beijing’s monetary policy loosening bias, the China Securities Journal reported on Monday, citing former central bank adviser Yu Yongding.

The comments by Yu, an influential economist at the Chinese Academy of Social Sciences, comes as the U.S. Federal Reserve is widely anticipated to hike interest rates later this week amid higher inflation, while some expect the People’s Bank of China (PBOC) to cut the rate on medium-term loans on Tuesday.

Yu, a former member of PBOC’s monetary policy committee, told the newspaper that even as the Fed raises its benchmark rate to 2%, the U.S. real interest rates would remain negative due to high inflation, in contrast to positive rates in China.

In addition, China has policy tools to prevent severe capital outflows, while the yuan’s flexibility can improve further to offset the impact on monetary policy independence from cross-border capital flows, Yu was quoted by the article as saying.

China, which faces economic headwinds including resurgent coronavirus cases at home, a sluggish real estate market and rising geopolitical tensions, has set a growth target of 5.5% for this year.

(Reporting by Samuel Shen and Andrew Galbraith)