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Free AccessMNI Policy: China, US Reach Consensus On Key Issues: PBOC Yi
BEIJING (MNI) - Chinese and U.S negotiators reached agreement on "many
crucial and important" issues, the People's Bank of China (PBOC) Governor Yi
Gang told reporters Sunday when asked on the progress over the yuan exchange
rate issues in the trade talks.
Here are the key takeaways from the response to the media's questions by Yi
and Pan Gongsheng, deputy governor and the head of the State Administration of
Foreign Exchange:
- China and the U.S. discussed how to respect each country's monetary
authority's autonomy deciding monetary policies, adhering to the principle of
letting the market decide exchange rate, living up to promises made in each G20
summit, such as not engaging in competitive devaluation or using exchange rate
for competition and maintain close communication on FX markets, as well as data
disclosure according to IMF rules, Yi said.
- Having a stable yuan doesn't imply a certain level against the dollar,
and yuan's value must be flexible to benefit China's economy and stabilize the
country's international payment, Yi said. The currency was "quite stable" in
2018 and its volatility was much smaller than that of sterling/dollar and
euro/dollar, Yi said.
- The exchange rate isn't China's main focus while making monetary policy
which prioritizes domestic situation, and the expectation on the yuan exchange
rate has become more stable after China introduced more hedging tools and pushed
for more market-based reform, Yi said.
- There is "certain room" for the country to cut reserve requirement ratio
(RRR) cuts, but it is not as big as that in the past few years. The current
level is not high compared with advanced economies after making five cuts
totaling 3.5 percentage points since 2018, said Yi. Policymakers also need to
consider risk prevention and good use of resources while deciding RRR level. The
PBOC will further simplify the framework of the RRR system and treat big, medium
and small banks accordingly, Yi said.
- The PBOC seeks to reduce funding cost by lowering risk-free interest
rates, including 7-day repo rate and yield of 10-year china government bond, and
by lowering risk premiums faced by small and private companies. It will seek to
remove "monopolistic issues" in interest rate formation, encourage competition,
improve transparency and bankruptcy procedure, Yi said.
- PBOC will improve countercyclical adjustment and maintain the expansion
of M2 and total social finance to match the growth of nominal GDP in accordance
with "neither too loose nor too tight" money supply, said Yi. Setting monetary
policy also needs to account for China's intertwined relationships with the
global economy, Yi said.
- International payment will remain balanced in the long term, said Deputy
Governor Pan Gongsheng. China's current account is supported by robust
manufacturing and slowing deficit in service sector, while the capital account
inflow is also increasing given growing FDI and participation in domestic
financial markets by foreign capital, Pan said.
- Orderly bond defaults are "normal" as they help deal with implicit
guaranteed payments, correct market distortions and normalize price formation
system, said Pan. The PBOC will improve rules on bond settlement and control the
impact of payment defaults, he said.
--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com
--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com
[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MI$$$$,MT$$$$,M$$FI$,MBQ$$$,MGQ$$$,MN$FI$,MN$FX$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.