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24 Jun 2013
Flash: Fine Combing the PBoC´s fine tuning statement - Nomura
FXstreet.com (Barcelona) - Nomura economist Zhiwei Zhang notes that The People's Bank of China (PBoC) issued a press release on its Q2 monetary policy committee (MPC) meeting on Sunday evening.
He sees that a new statement, absent from the Q1 release, said that the committee had agreed to "fine-tune policy when necessary". While he acknowledges that this "fine-tuning" statement as less hawkish than the overall message from the Q1 MPC meeting, he is not convinced that the policy stance has shifted from tightening to loosening.
He continues to note that the press release also says that the MPC agreed to "contain financial risks with more solid actions", which suggests to him that the policy objectives have not changed. Further, the financial risks in the economy are not yet fully under control and policy tightening only started in mid-March, and a shift of policy to an easing bias would exacerbate these financial risks.
Secondly, he notes that this is a regular MPC meeting which takes place every quarter-end. It is not an emergency meeting that took place in response to liquidity conditions in China. Thirdly, the phrase "fine-tuning" can be interpreted in many different ways. He writes, “We believe at this stage that the policy stance is better judged by action, rather than words. We would focus on the 7-day repo rate and 3-month Shibor rate to judge the direction of policy. Our baseline view is that these market interest rates are likely to remain higher than their month-ago levels, at least until 15 July when the Q2 GDP data is released.”
He sees that a new statement, absent from the Q1 release, said that the committee had agreed to "fine-tune policy when necessary". While he acknowledges that this "fine-tuning" statement as less hawkish than the overall message from the Q1 MPC meeting, he is not convinced that the policy stance has shifted from tightening to loosening.
He continues to note that the press release also says that the MPC agreed to "contain financial risks with more solid actions", which suggests to him that the policy objectives have not changed. Further, the financial risks in the economy are not yet fully under control and policy tightening only started in mid-March, and a shift of policy to an easing bias would exacerbate these financial risks.
Secondly, he notes that this is a regular MPC meeting which takes place every quarter-end. It is not an emergency meeting that took place in response to liquidity conditions in China. Thirdly, the phrase "fine-tuning" can be interpreted in many different ways. He writes, “We believe at this stage that the policy stance is better judged by action, rather than words. We would focus on the 7-day repo rate and 3-month Shibor rate to judge the direction of policy. Our baseline view is that these market interest rates are likely to remain higher than their month-ago levels, at least until 15 July when the Q2 GDP data is released.”