Tuesday, January 19, 2021
Martin Hennecke

PBOC vows pruduent, targeted policies
China's central bank said yesterday it will make prudent monetary policy more flexible and targeted, and reiterated it will not resort to flood-like stimulus. People's Bank of China Governor Yi Gang has said in June new loans for 2020 as a whole are likely to hit an all-time high of nearly 20 trillion yuan (HK$23.58 trillion). Banks doled out a total of 16.95 trillion yuan in new loans in the first 10 months, surpassing an annual record of 16.81 trillion yuan in 2019. China will keep the macro-leverage ratio basically stable, and improve the bond default risk prevention and disposal mechanism, PBOC yesterday said in its third-quarter monetary policy implementation report. Several high-profile defaults recently by Chinese state firms, including Yongcheng Coal and Electricity Holding Group and Huachen Auto Group Holdings Co sent shockwaves across China's corporate bond market. The bond defaults dented investor confidence and pushed up funding costs for many corporate borrowers, adding to pressures on China's nascent economic recovery. China will maintain "normal" monetary policy as long as possible, said the PBOC report, reiterating previous comments by Yi. It is very likely to exit from some of its stimulus measures as the economy improves, but there won't be any interest rate hike soon, a leading state newspaper said on its front page yesterday. "If previous rounds of withdrawing stimulus policies are a guide, 'tight money' and 'tight credit' are inevitable, and policy rate hikes are also normal," the China Securities Journal said. "However, we shouldn't see the monetary authority proactively raising the policy rate for some time to come." Government bond yields have risen sharply since the middle of the year amid signs of an economic recovery and expectations of a withdrawal of monetary stimulus. Traders have also been pricing in the possibility that banks will boost the benchmark interest rate for loans, known as the loan prime rate.
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