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As China’s post-pandemic recovery falters and deflationary signals deepen, the People’s Bank of China (PBoC) has begun quietly seeking guidance from European financial institutions on how to navigate a prolonged period of low interest rates.  According to reports, China’s central bank made “ad hoc” requests to at least two major European banks earlier this year, asking how their economies managed the impact of near-zero rates on financial systems during the previous decade. “We saw it as a precautionary move,” one European banker familiar with the request said. “You don’t wait until the engine stalls before asking how to restart it.” China’s monetary policy is entering the red zone For the past year, Beijing has steadily trimmed interest rates in hopes of bringing the domestic economy back to life. The benchmark policy rate was cut to 1.4% from 1.8%. The one-year loan prime rate now sits at 3%, down by half a point. Despite Beijing’s efforts, the economy remains unresponsive. Low household spending and businesses not borrowing as much as they should, despite the incentives, and prices have fallen for four straight months, with no relief in sight. The slowdown is not the only cause of headaches for Chinese policymakers, as the threat of deflation lurks. In its latest monetary policy statement, the PBoC acknowledged the uncomfortable truth: the economy faces “insufficient domestic demand, persistent low prices, and various hidden risks.” Perhaps even more telling is what the central bank didn’t say. Gone was the usual talk of bold interventions and aggressive easing. Instead, officials pledged to “implement policy with more flexibility in the intensity and pace.” Beijing wants to learn from Europe’s mistakes and Japan’s What China fears, Europe knows well. After the 2008 financial crisis, the European Central Bank (ECB) came up with monetary policy tactics such as zero…

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Filed under: News - @ July 3, 2025 6:24 pm