Wednesday, August 3, 2011

China Central Bank Halts Foreign Yuan Borrowing

The People's Bank of China announced a ban on mainland-based companies directly borrowing renminbi-denominated loans from foreign banks.  The Bank noted that the measure is "in line with the current macroeconomic controls and a prudent monetary policy", particularly given that such lending circumvents the benchmark interest rate that the central bank sets.  The Bank would continue to allow foreign yuan borrowing for financing import-export trade.

Meanwhile on monetary policy the PBOC has said that it will continue its prudent monetary policy for the rest of the year given that "Domestic inflation expectations remain on the high side".  The People's Bank of China last increased the interest rate by 25 basis points in July this year.  The Bank also raised the reserve requirements by 50 basis points in June this year to 21.5%.  China reported inflation of 6.4% in June, up from 5.5% in May, and above the government's target of 4%.  Forecasts for July inflation are for around 6.2-6.4%, many analysts see inflation peaking in June/July.


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