Sep 02, 2020 07:15 PM

Ex-PBOC Chief Warns Central Banks Need an Exit Strategy for Pandemic Monetary Policy

What’s new: Current monetary policy to support the economy amid the pandemic may be a double-edged sword, former Chinese central bank Governor Zhou Xiaochuan warned on Tuesday.

While the action taken by central banks amid the Covid-19 pandemic has been “swift and bold,” it’s urgent to study the exit strategy for monetary policy tools, as well as seek effective deleveraging measures, and address potential asset bubbles after the pandemic, Zhou said at an annual meeting held by European think tank Bruegel.

“On the one hand, we firmly support central banks’ monetary policy response to the pandemic. On the other hand, we should not ignore or underestimate side effects of the current monetary policy,” said Zhou.

What’s the background: In recent months, major central banks around the world, including the People’s Bank of China (PBOC), have rolled out a raft of measures to weather the impact of the pandemic on businesses, including urging banks to lend more and extend loan repayments.

China should try to prevent moral hazard when implementing financial policies in response to the pandemic, and think in advance about the withdrawal of the policy tools involved, PBOC Governor Yi Gang said in June.

Recently, multiple senior banking officials have said that China’s monetary policy is returning to “normal” in the post-pandemic era.

Related: China Will Maintain ‘Normal’ Monetary Policy, PBOC Official Says

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