People’s Bank Of China Sounds Grim

Central bankers are not noted as being wide-eyed optimists at the best of times. China’s are living up to the stereotype. The world’s investors are regaining some of their animal spirits on the strength of new signs that the slowdown in China’s economy is at last ending, but China’s central bankers are striking an ultra-cautious note in their  third-quarter monetary policy report.

They warn that global demand could slump again unless the crisis in the euro zone is sorted out, sending the world into a double-dip recession. As for China’s part of the world economy, ‘the foundation of an economic recovery is not yet solid”. The People’s Bank of China’s policy focus will emphasize growth, but monetary policy will remain “prudent”.

The central bank fears that measures to promote domestic consumption are potential inflationary, even though inflation is subdued despite rising energy prices and labour costs. Year-on-year consumer price inflation was 1.9% in September, down from 2% the previous month.

No mention of further cuts in interest rates or banks’ reserve requirements. Playing with the short-term liquidity taps, as was done with the $60 billion injection into the money markets earlier this week, is the sort of open-market operation the central bank now prefers to “fine-tune” the economy, regardless of the risk of more volatile short-term interest rates. It is a way to talk tight but act loose, and still be able to switch back to acting tight at short notice.

Leave a comment

Filed under Economy

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s