PBC Monetary Policy Reports: 2008/Q4 and Highlights 2008 published in English

After the Monetary Policy Report 2008/Q4 and the Highlights 2008 had been published at the end of February in Chinese only, the English versions are available on the PBC website now. While both do not contain any new information over the Chinese report, the Highlights are interesting as they give a good account of monetary policy in the past year.

23-FEB-2008: PBC Monetary Policy Report 2008/Q4 published

The Chinese version of the monetary policy report for the last quarter 2008 is published and the English version is expected soon. Q4 reports are of particular interest as they usually give the monetary outlook for the next year with the publication of the monetary targets to be achieved: Target growth of monetary aggregates; target increase of domestic loans; and target inflation rate.

The 2008/Q4 report differs from earlier reports as the traditional outlook for the coming year is smaller than in previous years. This undoubtedly reflects the higher-than-before uncertainty over the economic and monetary developments for 2009.  And the earlier practice of publishing the monetary targets for the next year was also again discontinued. The only target mentioned is that monetary aggregate M2 is forecasted to rise by around 17 per cent. For inflation, no target is published, but the risk for deflationary tendencies is highlighted.

The fact that no other targets are published may be interpreted as the PBC’s wish to gain a more flexible macro-control mechanism. This certainly is a valid point in the current  unpredictable and unstable economic environment. But had the PBC given a bit more of a concrete outlook for some of the monetary key data it could have signalled more confidence and thereby potentially promoted stability in itself. All eyes are now on the  soon-to-be-published 2008 annual monetary policy report or the 2009/Q1 report. These are two other possible places for publishing monetary targets for 2009.

15-AUG-2008: PBC Monetary Policy Report 2008/Q2 published

The monetary policy report for the second quarter 2008 was published on 15 August in English. It features the usual statistics of financial and monetary performance with an analysis of the conduct of monetary policy. Additionally, this time the report is written at the background of various monetary disaster relief actions in the aftermath of the May earthquake.

I expected the report to shed some light on the actual usage of window guidance in the current inflation fighting efforts of the PBC. For some reason none of the recent notifications of the PBC did focus on the usage of this so important instrument of the central bank. This is surprising, particularly since the authorities gave a rather good account of the utilization of window guidance in the 2003/04 expansionary cycle. It is unclear why the PBC seems so reluctant this time to give some details on the implementation practice.

For sure, the instrument still plays a major role in the monetary set-up. The recent report confirms that and states: “In line with the principle of differentiated treatments of different sectors, the PBC guided commercial banks in optimizing the credit structure, strictly limiting lending to low-quality enterprises in industries with high energy consumption, heavy pollution, or overcapacity, strengthening credit support to the rural economy, earthquake disaster relief, small and medium-sized enterprises, the services sector, self-initiated innovation, energy conservation and environmental protection, and improving financial services in the rural areas.” Just how it is done this year is somewhat a black box at the moment.

14-MAY-2008: PBC Monetary Policy Report 2008/Q1 published

The monetary policy report for the first quarter 2008 is published, for the time being in Chinese only. In the past, Q1 reports sometimes gave updates on the monetary outlook for the year and served as an instrument to publish the yearly monetary targets of target growth of monetary aggregates; target increase of domestic loans; and target inflation rate. This time, as expected, no reference was made vis-a-vis the exact scope of monetary policy targets in 2008.

The report focuses on analyzing the current inflationary environment and measures taken to tightening monetary policy in the first months of 2008, including minimum reserve adjustments and currency appreciation of more than four per cent. At the end of the 2008/Q1 report there is a dedicated section to this year’s outlook with the title “货币政策趋势” (Monetary Policy Trends). The section covers very broad issues around the overarching theme of monetary tightening without setting-out clear targets on how to achieve it. Measures to be undertaken in the subsequent periods are (among others):

继续加强流动性管理，引导货币信贷合理投放 (Continue to strengthen liquidity management, guide reasonable credit growth in the market);

合理运用价格型工具 (Rational application of market-based instruments);

加强窗口指导和信贷政策指引 (Strengthen window guidance and credit policy);

采取综合措施，促进国际收支平衡 (Adopt comprehensive measures, promote a stable balance of payments); and

积极发展直接融资 (Vigorously develop direct financing).

The English version of the report is expected soon. I’ll keep you posted.

PBC Monetary Policy Reports: 2007/Q4 and Highlights 2007 published in English

After the Monetary Policy Report 2007/Q4 and the Highlights 2007 had been published at the end of February in Chinese, the English versions are available on the PBC website now. While both do not contain any new information, the Highlights 2007 are interesting as they give a good account of central bank moves in the past year. Naturally, this information is also incorporated into the statistics updates of this blog.

22-FEB-2008: PBC Monetary Policy Report 2007/Q4 published

The long-awaited monetary policy report for the last quarter 2007 is published, for the time being in Chinese only. The English version is expected soon. Q4 reports are of particular interest as they usually give the monetary outlook for the next year with the publication of the monetary targets to be achieved: Target growth of monetary aggregates; target increase of domestic loans; and target inflation rate. These are the result of consultations within the government circles as well as the discussions around the Annual Central Economic Working Conference, usually convened in December of the preceding year.

The 2007/Q4 report is no exception and has a dedicated section to this year’s outlook with the title “2008年货币政策取向” (2008 Monetary Policy Orientation) covering similar issues as Q4 reports of previous years:

1. 综合运用对冲措施，继续加强流动性管理 (Improve and strengthen liquidity management);
   
2. 合理运用价格型工具实施调控 (Further implementation of market-based instruments);
   
3. 完善有管理的浮动汇率制度 (Further improve the RMB exchange rate regime);
   
4. 继续加强对金融机构的窗口指导和信贷政策指引 (Continue to improve window guidance and credit policy vis-a-vis the financial system);
   
5. 大力培育和发展金融市场 (Vigorously foster and develop the financial market);
   
6. 深化金融企业改革 (Deepen reforms of the financial industry); and
   
7. 进一步改进外汇管理 (Further improve the foreign exchange management).

But there is a main difference to prior reports, i.e. the lacking of the awaited announcement of 2008 monetary targets as it was the usual procedure in 2004, 2005 and 2006. The fact that no targets are published may be interpreted as the PBC’s wish to gain a more flexible macro-control mechanism and to be able react to unexpected developments as they arrive. Such or similar were the explanations of the decision to not publish any target values any more for the increase of domestic loans in 2007 (China.org.cn).

This time, however, it seems for 2008 no monetary targets at all would be published. In my view, this would be dangerous as it could show that the central bank currently is not confident enough to reach given monetary targets; as a result the public may increase inflation expectations at large given the perceived powerlessness of the central bank. Naturally, it would equally be wrong to publish monetary targets that would be missed by a large margin in 2008. It is therefore important that the PBC not only sets targets for 2008 to show that the bank is confident to reign the current inflationary threat, but also that these targets are appropriate, i.e. reachable, to make clear (ex post) that the bank actually has control. Admittedly, the publication of targets may come in the 2007 annual monetary policy report or the 2008/Q1 report, which are to be published soon, too. So far, the most concrete target for monetary growth from the central bank comes from Yi Gang, vice governor of the People’s Bank of China, when he addressed a financial forum with an estimated M2 growth of 16 per cent in 2008. I’ll keep you posted.