In a striking sign of the Chinese economy's stagnation, the central bank said on Friday that it had temporarily stopped buying government bonds. This unexpected action aims to slow a recent investor shift toward bonds while avoiding riskier assets like stocks and real estate, which has driven long-term interest rates to a record low.
The unusual decision to stop buying government bonds comes at a time when most of the world is witnessing rising interest rates due to inflation fears. In China, however, the concern lies with chronic low inflation indicative of stagnation, prompting households to turn to state-owned banks for savings despite meager interest rates.
Chinese banks find themselves overwhelmed with rising deposits as households seek safety in an uncertain economy, leading to issues with lending to businesses that remain pessimistic about prospects. As banks invest excess deposits in bonds, the demand spike has led to inflated bond prices and lowered yields.
By temporarily halting its own bond purchases, the central bank is attempting to temper the bond market's upward price trajectory, which in turn could help reverse the decline in interest rates, addressing the unusual economic landscape of China with low inflation and high savings.
Collection
[
|
...
]