Monetary Policy Committee (MPC): 1st Quarter 2009 Meeting in April 2008

The MPC convened its first meeting 2009 in the beginning of April 20089. The meeting analyzed the current economic and financial situation, highlighting that financial turmoil is still spreading and the crisis deepening. The meeting held that despite this adverse economic environment China’s policies were able to maintain liquidity in the domestic financial system. This is indeed confirmed by the recent figures published on M2 growth and the rate of increase of domestic loans. This right and important, I think, but authorities should not forget to watch out for the medium to long term: An exit option from expansionary policies might be needed soon!

Broad money (M2) grew 25.5 per cent in China at end-March 2009

Monetary aggregate M2 increased by 25.5 per cent year-on-year in March 2009, up another 4.7 percentage points from February 2009 and 6.7 percentage points from January 2009. While the high growth rates show the effectiveness of the policies of the last months, the Monetary Policy Committe meeting of the first quarter 2009 also reaffirmed this stance for the immediate future. Rightly so as China’s economy is on the edge of deflation in the short-run.

Monetary Policy Committee (MPC): 4th Quarter 2008 Meeting in December 2008

Recent developments: The MPC convened its fourth meeting 2008 just before the end of the year. The meeting analyzed the current economic and financial situation, focusing on the potential impact of the international financial crisis on China’s economic and financial development. The meeting held that despite the adverse economic impact that China faces from an international difficult and challenging situation, China’s long-term growth trend based on positive economic fundamentals has not changed.

In this regard and to support other efforts for strengthening the macroeconomic outlook, the MPC called upon the PBC to implement a “moderately loose monetary policy” (落实适度宽松的货币政策) in 2009. The meeting further confirmed the need to maintain adequate liquidity of the banking system by promoting the steady growth of monetary credit. The MPC also supported the view to keep the RMB exchange at a basically stable level; in fact, the RMB appreciation against the USD virtually stalled in recent months.

Background: The Monetary Policy Committee, established in July 1997, consists of 13 members including the Governor of the PBC. The 12 other members represent certain important sectors of the Chinese economy to ensure that monetary policy is implemented in accordance with and for the whole economy. This move towards a more comprehensive and strategic orientation was demanded by the 1st Plenary Session of the 10th National People’s Congress and came into effect in the middle of the year 2003.

In its’ regular meetings, one per quarter, the members discuss the present monetary policy stance, i.e. the state of money supply, interest rate, exchange rate, open market operations, reserves requirements, rediscount rates and the coordination of monetary policy with other macroeconomic policies. The outcome together with a future monetary policy outlook is published on the central bank’s website after each regular meeting of the committee. Through its meetings, the committee plays an advisory role regarding the future monetary policy stance; the committee has no decision making authority.

Monetary Policy Committee (MPC): 3rd Quarter 2008 Meeting in October 2008

Recent developments: The MPC convened its third meeting 2008 in the beginning of October 2008. The meeting highlighted recent developments in the global financial markets and potential lesson to be learnt from a Chinese perspective.  The meeting particularly stressed the fact that financial supervision within a market-driven flexible system is key for maintaining macroeconomic control of the economy. The meeting also discussed the need of strengthening domestic demand to better levelling the balance of payment.

The meeting did apparently not touch upon the  issues of inflation, which was still at the heart of discussions in previous meetings this year. This shows the tendency of the PBC to increasingly disregard inflation as the main threat for the economy. In fact, economic growth and stability cleraly are on top of the agenda now.

Background: The Monetary Policy Committee, established in July 1997, consists of 13 members including the Governor of the PBC. The 12 other members represent certain important sectors of the Chinese economy to ensure that monetary policy is implemented in accordance with and for the whole economy. This move towards a more comprehensive and strategic orientation was demanded by the 1st Plenary Session of the 10th National People’s Congress and came into effect in the middle of the year 2003.

In its’ regular meetings, one per quarter, the members discuss the present monetary policy stance, i.e. the state of money supply, interest rate, exchange rate, open market operations, reserves requirements, rediscount rates and the coordination of monetary policy with other macroeconomic policies. The outcome together with a future monetary policy outlook is published on the central bank’s website after each regular meeting of the committee. Through its meetings, the committee plays an advisory role regarding the future monetary policy stance; the committee has no decision making authority.

Monetary Policy Committee (MPC): 2nd Quarter 2008 Meeting in July 2008

Recent developments: The MPC convened its second meeting 2008 in July 2008 stating that inflationary pressure was still noticeable and the BOP imbalances still remained a concern since the last meeting in March. In its notice on the PBC website the central bank reports “weighing the monetary policy stance and measures for the coming periods, the Committee held the view that efforts should be made to keep the continuity and stability of the monetary policy (…) so as to create a benign monetary environment for sound and rapid economic development“. This is a hint that the internal discussion of fighting inflation vs. economic growth is pending towards growth. China Daily confirmed that view and headlined just after the meeting “Stable economic growth to get priority“. In a situation where it is not yet clear whether inflationary pressures are really easing this is a dangerous signal. Don’t expect any interest rate move or other tigthening anytime soon.

Background: The Monetary Policy Committee, established in July 1997, consists of 13 members including the Governor of the PBC. The 12 other members represent certain important sectors of the Chinese economy to ensure that monetary policy is implemented in accordance with and for the whole economy. This move towards a more comprehensive and strategic orientation was demanded by the 1st Plenary Session of the 10th National People’s Congress and came into effect in the middle of the year 2003.

In its’ regular meetings, one per quarter, the members discuss the present monetary policy stance, i.e. the state of money supply, interest rate, exchange rate, open market operations, reserves requirements, rediscount rates and the coordination of monetary policy with other macroeconomic policies. The outcome together with a future monetary policy outlook is published on the central bank’s website after each regular meeting of the committee. Through its meetings, the committee plays an advisory role regarding the future monetary policy stance; the committee has no decision making authority.

Monetary Policy Committee (MPC): 1st Quarter 2008 Meeting on 31-MAR-2008

Recent developments: The MPC convened its first meeting 2008 on 31 March 2008 placing the need for stabilizing inflation expectations at the centre of the discussions. Several economists, cited in an article of ChinaDaily on 01 April, promptly concluded that this would be a hint to interest rate increases in the near future. Since the MPC discussed comprehensive measures to be taken, referring to strengthening measures of monetary policy (货币政策), finance (财政), industry (产业), trade (贸易) and financial supervision (金融监管), I would not expect interest rate changes in the immediate future. Naturally, if China’s economy was fully marketized with an functioning indirect monetary policy approach, interest rate changes would be the measures to be taken. Instead, in the absence of a functioning indirect monetary policy approach, I am expecting further tightening measures and announcements in the areas of window guidance, price controls and exchange rate appreciation. An interesting 2nd quarter 2008 is in front of us.

Background: The Monetary Policy Committee, established in July 1997, consists of 13 members including the Governor of the PBC. The 12 other members represent certain important sectors of the Chinese economy to ensure that monetary policy is implemented in accordance with and for the whole economy. This move towards a more comprehensive and strategic orientation was demanded by the 1st Plenary Session of the 10th National People’s Congress and came into effect in the middle of the year 2003.

In its’ regular meetings, one per quarter, the members discuss the present monetary policy stance, i.e. the state of money supply, interest rate, exchange rate, open market operations, reserves requirements, rediscount rates and the coordination of monetary policy with other macroeconomic policies. The outcome together with a future monetary policy outlook is published on the central bank’s website after each regular meeting of the committee. Through its meetings, the committee plays an advisory role regarding the future monetary policy stance; the committee has no decision making authority.