PBoC monetary policy shifts to deal with capital outflows

The People’s Bank of China’s monetary policy has shifted from dealing with an inundation of foreign exchange to deploying an expanding suite of tools in order to keep the country’s base money growing in the face of capital outflows, The Financial Times reported, citing the central bank’s latest monetary policy report. While the bank’s purchases of foreign exchange fell by RMB2.1 trillion last year compared to 2013, the monetary policy tools it deployed injected RMB2.1 trillion in base money in 2014. Thanks to the outflows, liquidity injections like last week’s cut to banks’ required reserve ratio, once taken as a sign of easing, now appear to be aimed at maintaining the status quo.