South China Morning Post:
The PBC on Monday unexpectedly cut the interest rates of its medium-term lending facility (MLF) loans and the open market reverse repo rate. Does this mean a new round of easing cycle is unfolding? Will it be followed by a corresponding LPR cut within the week? Meanwhile, the Federal Reserve hinted at quicker tapering and interest rate hikes. Is the PBC worried about the impacts brought by the monetary policy divergence between China and the U.S., including capital outflow or yuan depreciation? Is there any detailed arrangement for China-U.S. macro-policy coordination? Thank you.
Sun Guofeng:
This year, the PBC has strengthened cross-cyclical adjustments and stepped up liquidity injection. On Jan. 17, the PBC cut the interest rates of its one-year MLF loans and seven-day open market operations by 10 basis points, which was followed by corresponding reductions to the interest rates in the money market and the bond market. Before the new LPR was disclosed, quotation banks gave comprehensive consideration to factors such as capital costs, risk premiums and the market supply and demand, so that the LPR would promptly and fully reflect interest rate changes in the market, encourage financial institutions to lower their interest rates on loans for enterprises and promote a reduction in overall financing costs for enterprises. We have noticed the recent monetary policy adjustments by major developed economies, and the market expects that the Fed will raise interest rates and shrink its balance sheet. China's macro-economy is big and highly resilient. We have been implementing normal monetary policies since the outbreak of the pandemic. Instead of using a deluge of stimulus policies, we properly organized cross-cyclical regulation, kept liquidity reasonably ample and provided solid financial support for the real economy. China's financial system has become more stable and domestically driven. The yuan exchange rate expectations are also stable. All of this will help mitigate and respond to external risks. In general, policy adjustments by major developed economies will have a limited effect on our economy.
Next, the PBC will prioritize stability and work according to China's conditions. We will implement prudent monetary policies with the proper force and pace based on domestic situations, while increasing the yuan exchange rate's resilience to give full play to the role of the exchange rate as an automatic stabilizer capable of adjusting the macro-economy and the balance of payments. We will also encourage market entities to establish a "risk-neutral" attitude, strengthen the macro and prudent management of cross-border capital flow, better manage expectations, maintain basic stability in the yuan exchange rate, and respond to monetary policy adjustments by major developed economies in a proactive and prudent manner. Thank you.
