China seen heading towards black box monetary policy

Shanghai

CHINA'S central bank put investors on edge in October, setting aside transparency in favour of covert monetary policy operations as regulators balance the need to revive productive investment against the risk of reanimating high-risk credit growth.

The strategy has two prongs. On the one hand, the People's Bank of China (PBOC) has gone passive in the open money market, neither injecting nor draining cash on a net basis for three straight weeks, the longest such stretch on record.

On the other, it has moved billions into the banking system through unpublicised channels, befuddling investors who had expected it to follow through on commitments to become more transparent, not more opaque. "The PBOC's latest move, if it turns out to be true, represents a further move towards black box monetary policy," Dutch bank ING wrote in a recent resea…