New POBC Head Could Slow Down Reforms

A change of guard at China’s central bank is unlikely to herald a major shift in monetary policy but could alter the pace of financial reforms, economists say.

Chinese President Xi Jinping is considering replacing People’s Bank of China (PBOC) Governor Zhou Xiaochuan as part of a wider personnel reshuffling following internal battles about overhauling the economy, The Wall Street Journal reported late Wednesday, citing party officials with knowledge of the plans.

While these plans remain speculative, Xi may be looking to replace Zhou due to differences in their visions for modernizing China’s monetary policy, including the speed of interest rate liberalization, said Dariusz Kowalczyk, senior economist, Asia ex-Japan at Credit Agricole.

“Zhou is pushing for interest rate reforms, which would lead to an upward pressure on rates. Slowing growth is not ideal for a higher interest rate environment. Perhaps that’s the reason why there is speculation about his departure,” he said.

The rumors come against a backdrop of slowing economic activity in the mainland, which has triggered fears of an accelerated slowdown and raised expectations of further measures to bolster the economy.

If Zhou is replaced, it could delay the liberalization of interest rate and opening of the capital account, Kowalczyk said.

via CNBC

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