China central bank to maintain prudent policy to prevent inflation from spreading

China’s economic growth for the third quarter tumbled to its slowest pace in nearly three decades, under pressure from slowing global demand and the ongoing US-China trade war. (Reuters)
Updated 17 November 2019

China central bank to maintain prudent policy to prevent inflation from spreading

BEIJING: China’s central bank said on Saturday it will maintain prudent monetary policy to prevent inflation from spreading.

In its third quarter monetary policy report, the People’s Bank of China (PBoC) also said it was studying plans to switch the benchmark rate for existing loans to the new loan prime rate (LPR).

China’s economic growth for the third quarter tumbled to its slowest pace in nearly three decades, under pressure from slowing global demand and the ongoing trade war between China and the US.

At the same time, China’s consumer inflation has quickened to a near eight-year high of 3.8 percent, driven in part by soaring pork prices as a result of an outbreak of African Swine Fever in the country, posing a dilemma for the central bank.

“The PBoC is increasingly concerned about rising CPI inflation and inflation expectations,” economists at Nomura said in a note, saying those risks may incline policymakers to lower profile-easing measures in the near term.

The PBoC had unexpectedly made a 200 billion yuan ($28.60 billion) liquidity injection earlier in the day.

Despite the higher inflation rates the central bank is expected to lower the LPR next Wednesday, for the third time since it was introduced in August.

The introduction of the LPR — a lending benchmark for new bank loans to households and businesses — is part of a broader packet of reforms the central bank is exploring to reduce corporate borrowing costs in the world’s second-largest economy.

In Saturday’s report, the PBoC reiterated that it would continue to significantly lower real interest rates through reforms.

It said the weighted average lending rate fell 4 basis points in the third quarter to 5.62 percent.

China's central bank also said that it would strengthen counter-cyclical adjustments in light of the rising downward pressure on the economy. 


$8bn blow to Erdogan as investors flee Turkey

Updated 09 July 2020

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.