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

The recent collapse of 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 economy world and the possibility of triggering new financial risks, a China official said. the central bank said on Saturday.

“Recent risks exposed by a few banking institutions in the United States 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 Governor of the People’s Bank of China (People’s Bank of China). PBOC), at the 2023 annual conference of the Global Asset Management Forum.

The low long-term interest rate environment in the past has accustomed some financial institutions to managing assets and liabilities in a low-volatility environment, lacking expectations and sensitivity to short-term and large rate fluctuations. of interest. Silicon Valley Bank’s asset-liability characteristics made it more sensitive to changes in interest rates and ultimately led to risks, Xuan said.

It is still unclear whether inflation in the major developed economies can come down significantly in the short term, and continued high interest rates can have negative effects on the proper functioning of banking and other financial systems. which increases the dilemma facing the regulation of monetary policy,” he added.

The investment and hedging attributes of Chinese financial assets will be more prominent

While the level of interest rates of major developed economies has changed sharply in recent years, China has kept the level of interest rates to match the requirement of potential economic growth and has not returned monetary policy too strict, Xuan said.

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

China’s open, stable and developed market provides the world with diversified opportunities and choices in a complex and changing environment, Xuan said.

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