Since Pan Gongsheng took over as governor of the People's Bank of China (PBOC) in July 2023, the central bank has implemented three significant monetary pivots aimed at stabilizing the economy and enhancing financial regulation. The first pivot involves a transition from quantitative measures, such as bank credit, to price-based tools for monetary policy. This shift is designed to improve market efficiency and transparency [b7b63716].
As of July 2024, the broad money supply (M2) increased to 303 trillion yuan (approximately US$42.6 trillion), reflecting the central bank's efforts to inject liquidity into the economy while managing inflationary pressures [b7b63716]. The second pivotal change is the establishment of an interest rate corridor, which ranges from 2.7% to 0.35%, focusing particularly on short-term rates. The current seven-day reverse repo rate stands at 1.7%, indicating a strategic approach to interest rate management [b7b63716].
Additionally, the PBOC has introduced treasury bond trading for the first time in nearly two decades, with a net purchase of 100 billion yuan (US$14 billion) aimed at managing liquidity more effectively. This move is part of a broader strategy to stabilize the financial system and enhance the effectiveness of monetary policy [b7b63716].
On August 25, 2024, Governor Pan emphasized the need for a supportive monetary policy to ensure economic recovery, particularly as financial risks appear to be easing. Local government financing platform debts have decreased, and the number of high-risk small and medium banks has nearly halved [fefeed1b].
Despite these positive developments, new bank loans in July 2024 fell to a 15-year low of 260 billion yuan (approximately US$36.5 billion), and the M1 money supply dropped by 6.6% year on year, indicating ongoing challenges in credit growth and consumption recovery [fefeed1b].
The PBOC's recent rate cuts, implemented on July 22, 2024, have had a notable impact on global markets, initially causing declines in cryptocurrencies and major European indices. However, Bitcoin has since shown signs of recovery, reflecting the market's volatility and sensitivity to policy changes [68e653a3].
As part of its broader strategy, the PBOC is also addressing the challenges faced by small banks, which have been under pressure due to squeezed profits and high debt levels. Efforts to consolidate smaller banks are seen as necessary to improve credit quality and stabilize the financial system [2da4437c].
Huang Yiping, a member of the PBOC's monetary policy committee, has suggested implementing direct money transfers to households as a way to stimulate the economy, alongside calls for compulsory inflation targets and increased government spending to bolster consumption [94df61bc].
Overall, the PBOC's commitment to these monetary pivots under Pan Gongsheng reflects its recognition of the need for ongoing intervention to navigate the complexities of China's economic landscape and promote recovery amid evolving financial risks [fefeed1b].