PBC sends mixed monetary signals

When the People's Bank of China (PBC) released official data earlier this month showing that the medium- and long-term debts held by enterprises in the country stacked up to 168.5 billion yuan ($26.98 billion) in October, when aggregate market financing hit 1.29 trillion yuan, many took this as a sign that the credit squeeze which has long been dogging the domestic business community was coming to an end.

Taking a closer look at PBC numbers though, one can also see that new yuan-denominated loans sank to 505.2 billion yuan during the same month, a 13-month low and a sure sign that the government is still keeping a tight grip on monetary policy.

What adjustments China should make to its monetary policy is the subject of hot debate and recent history seems to offer few cues for what direction the country should take in the future. For example, when the country raised interest rates to counter inflation, this impacted the profits of many businesses and reduced their investment enthusiasm.

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