Time for a PBOC Shake Up?

With Chinese economic progress in snooze mode, President Xi Jinping thought that it was about time to give the PBoC a wake-up call by talking about a potential change in central bank leadership. Not only might this involve a replacement for current PBoC head Zhou Xiaochuan, but it could also lead to an overall personnel reshuffle.

From the looks of it, Chinese government leaders are disappointed with country’s slow economic growth, which is still far below the 7.75% annual target. It doesn’t help that recent Chinese trade and manufacturing figures are hinting at a prolonged slowdown and the need for more stimulus.

Well, it’s not like PBoC head Zhou didn’t do much during his three consecutive terms as central bank governor! In fact, he implemented several key changes, including liberalizing interest rates, adjusting the yuan’s exchange rate band, and allowing more foreign investments in the Chinese financial market – all in an effort to support the government’s economic reform.

Bear in mind though that PBoC head Zhou has stopped short of actually cutting interest rates, in fear of sparking another asset bubble in China. He has also refrained from doling out more liquidity, as policymakers were keen to avoid adding to the country’s debt burdens. Their latest move was the launch of a new lending facility called the Pledged Supplemental Lending, but this didn’t appear to gain much traction among banks and borrowers. No wonder President Xi Jinping ain’t impressed!

In addition, some political analysts are speculating that President Xi is also trying to put more allies in top positions in order to strengthen the current government’s stronghold. Others cautioned that overhauling the central bank leadership could lead to more policy uncertainty, which might undo some of the economic progress that China has made. The official changes are yet to be announced in October, but it appears that forex market participants are already starting to consider the potential repercussions.

Word through the forex grapevine is that a more dovish central banker would take the top PBoC position. One of the leading contenders is Guo Shuqing, who is the current governor of the eastern province of Shandong and has been a banker and securities regulator. In fact, many were surprised to see him in attendance at a monthly meeting set by the secretariat of the PBoC’s monetary policy committee. Is he being groomed to replace PBoC head Zhou?

For now, the uncertainty surrounding the PBoC’s leadership appears to be weighing on the commodity currencies, particularly the Aussie and the Kiwi. After all, China shares strong trade ties with Australia and New Zealand, both of which rely heavily on its commodity exports for growth. An actual change in leadership and monetary policy bias might still keep the Aussie and Kiwi uneasy, although a potential commitment to more aggressive stimulus in China could eventually shore up growth, trade, and risk appetite – all of which could revive the comdolls.