PBOC to Maintain Prudent Monetary Policies

PBOCThe People's Bank Of China (PBOC) headquarters on Saturday, Nov. 8, 2014. Tomohiro Ohsumi

China’s central bank has pledged to continue prudent monetary policies while maintaining reasonable liquidity in the banking system.

According to a joint statement from the People’s Bank of China and monetary authority on Friday, Yuan exchange rates would be basically stable at reasonable equilibrium level in 2016. The apex bank promise to further promote the internationalization of the Chinese currency and would continue to offer credit support to some key areas of the economy with lower-social financing costs.

China Stocks Gain

Chinese stocks gained after the government suspended a controversial circuit breaker system. Shanghai Composite index gained 2 percent after falling 2.2 percent earlier on Thursday.

“The scrapping of the circuit breaker system will help to stabilize the market, but a sense of panic will remain, particularly among retail investors,” said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management. “The ‘national team’ will probably continue to buy stocks significantly to stabilize the market.”

China’s decision to suspend circuit breaker system makes sense, but the timing and implementation is questionable, this is because China realized that it had very close-fitting limits, which is more harmful at the moment, said Mohamed El-Erian, the chief economic adviser at Allianz SE.

“They realized this, which is good news. The bad news is they took it off at a very peculiar time and did so without a whole set of compensating measures,” said El-Erian, who is also a columnist for Bloomberg View.

In Shanghai and Shenzhen, CSI 300 Index of large-cap companies advanced 2 percent, while Hang Seng China Enterprises Index gained 1.1 percent from previous four-year low.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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