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Economy

PBOC is not considering quantitative easing

CKN
minutes 2019/02/02 03:11:18
2,507
China's News, China Financial News, QE, PBOC

Feb 02, 2019 (China Knowledge) - Director of the Monetary Policy Committee at the People's Bank of China, Mr Sun Guofeng declared that the central bank does not see a need to activate quantitative easing. This was in response to recent discussions about whether the central bank is going to directly buy equities, purchase government bonds or even practice QE.

Quantitative Easing is the act of purchasing large-scale asset; by buying government bonds or other assets. A central bank will carry out this expansionary monetary policy to boost the economy and adding liquidity.

Mr Sun said that QE is a monetary measure to steer financial markets. Sun did point out that China is typical of a bank-fed financial system. This meant that the central bank will rely on regulating banks behaviours as its transmission mechanism. Therefore, Sun said that PBOC does not need to invoke QE.

Sun did warn that if PBOC were to purchase huge number of Chinese government bonds in the secondary market, this will be equivalent to purchasing in the primary market directly. This will lead to a monetized deficit and trigger inflation.

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