SVB failure shows danger of rapid global interest rate hikes: PBOC official

The recent collapse of the California-based Silicon Valley Bank (SVB) shows that the rapid interest rate hikes taken by major developed economies to curb inflation have raised concerns about their impact on the global economy and the possibility of triggering new financial risks, an official in China’s central bank said on Saturday.

“The recent risks faced by a few banking institutions in the US and Europe indicate that the rapid adjustment of monetary policy in major developed economies has both spillover effects and internal influences,” said Xuan Changneng, deputy director of the People’s Bank of China. PBOC), at the Global Asset Management Forum 2023 Annual Conference.

The long-term low interest rate environment in the past has made some financial institutions accustomed to managing assets and liabilities in an environment of low volatility, without expectations and sensitivity to short-term and large fluctuations in interest rates. Silicon Valley Bank’s asset-liability characteristics made it more sensitive to interest rate changes and ultimately led to risk, Xuan said.

It is still uncertain whether inflation in the major developed economies can fall significantly in the short term, and continued high interest rates can have negative effects on the healthy functioning of banking and other financial systems, increasing the dilemma facing monetary policy regulation. , he added.

Investment, hedging properties of Chinese financial assets will be more prominent

While interest rates in major developed economies have been changing sharply in recent years, China has kept interest rates to match the demand for potential economic growth and has not made monetary policy too tight, Xuan said.

“As China’s economic growth momentum gradually recovers and the financial market opens up further, we believe the investment and hedging characteristics of Chinese financial assets will become more prominent,” he said, citing data that at the end of last year was the balance. of foreign entities with renminbi assets in China was 9.6 trillion yuan (US$1.4 trillion), an increase of 1.2 times from 2017.

China’s open, stable and developed market provides the world with diverse opportunities and choices in the complex and changing environment, according to Xuan.

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