China Central Bank Flags Concern on Euro Area Deflation Risks

The People’s Bank of China noted that the euro zone faces “deflationary risks” while the U.S. economy is seeing many “positive signs,” according to a statement from the central bank’s monetary policy committee.

This is the first time that the committee, an advisory body headed by People’s Bank of China Governor Zhou Xiaochuan, highlighted risks in the euro zone. The PBOC said the world economy is still in the midst of a post-crisis restructuring as international commodity price swings stir financial markets.

China “will closely watch the latest changes to the economic and financial situation at home and abroad,” the PBOC said today in its three-paragraph statement. The central bank will stick to a prudent monetary policy and “pay more attention to balance between easing and tightening,” it said, echoing language used in recent weeks.

The PBOC, which manages China’s $3.9 trillion foreign exchange reserves via the State Administration of Foreign Exchange, didn’t mention a strategy in dealing with euro zone risks.

In a separate statement today, the central bank said it had conducted three short-term liquidity operations in November, injecting 166 billion yuan ($26.8 billion) worth of liquidity into the interbank market. The last time the central bank used such operations to inject liquidity was in last December, according to its website.

— With assistance by Xin Zhou

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