MNI INTERVIEW: PBOC Will Act On Capital Outflow - MPC Member

China’s economy will experience limited effects from further U.S. Federal Reserve rate hikes as the People’s Bank of China will step in to stem any significant capital outflow, a PBOC Monetary Policy Committee member told MNI.

Emerging markets will continue to suffer capital outflow pressure and currency depreciation as the Fed’s rate hikes strengthen the U.S dollar, which has attracted global funds into the American market, Wang Yiming told MNI on the sidelines of the 2023 Bund Summit in Shanghai. “The impact on China is limited as our capital account has not completely opened… the PBOC will take actions if big capital outflows occur,” Wang said in an interview.

The Fed held its Federal Funds Rate steady at the 5.25-5.5% range this week but noted rates would stay elevated for longer and suggested further hikes were possible. (See MNI FED WATCH: Proceeding Carefully To Peak Rates)

EXCHANGE RATE

Wang said the Chinese economy will experience a gradual recovery rather than a sharp rebound after the shock of the pandemic. “We have seen an upward trend even though the process is volatile, so we must be confident and patient,” he noted.

He added the yuan's performance was not concerning as the exchange rate would improve alongside economic fundamentals. The impact of any forex market intervention would be limited without economic recovery, Wang said.

“The central bank basically hopes the market will play a decisive role in pricing the yuan,” the advisor continued. He doubted whether the yuan had “overshot,” pointing to the price gap between CNY and offshore yuan. (See MNI: PBOC To Seek To Close Gap Between Yuan Fixing And Market)