China will cut interest rates further to stabilise the economy, as shrinking China-US yield spreads won’t change Beijing’s monetary policy loosening bias, the China Securities Journal reported on Monday, citing former central bank adviser Yu Yongding.
The comments by Yu, an influential economist at the Chinese Academy of Social Sciences, comes as the US Federal Reserve is widely anticipated to hike interest rates later this week amid higher inflation, while some expect the People’s Bank of China (PBOC) to cut the rate on medium-term loans on Tuesday.
Yu, a former member of PBOC’s monetary policy committee, told the newspaper that even if the Fed raises its benchmark rate to 2%, ‘real’ US interest rates would remain negative due to high inflation, in contrast to positive rates in China.
In addition, China has policy tools to prevent severe capital outflows, while the yuan’s flexibility can improve further to offset the impact on monetary policy independence from cross-border capital flows, Yu was quoted by the article as saying.
China, which faces economic headwinds including resurgent coronavirus cases at home, a major real estate market slowdown and rising geopolitical tensions, has set a growth target of 5.5% for this year.
- Reuters with additional editing by Jim Pollard