China yuan: top financial regulators raise alarm over global inflation, tightening Western monetary policy
- High global inflation has been highlighted as a significant challenge for China by central bank governor Yi Gang and top banking regulator Guo Shuqing
- Sentiment towards yuan-denominated assets is weakening amid concern about zero-Covid and possible intervention in the foreign exchange market
China’s top financial regulators have warned about the risks of high inflation and tightening monetary policies among major Western economies as growing pressure on the yuan stokes capital outflows.
The US Federal Reserve raised interest rates by 75 basis points for the fourth consecutive time this year on Thursday to tame elevated inflation, with chairman Jerome Powell saying the inflation fight is far from over and further hikes could exceed expectations.
Increasingly divergent monetary policies between China and the United States have been a key concern of Chinese regulators, who would prefer to keep relatively loose policy as downside pressure on the yuan builds and contributes to outflows from Chinese equities and bonds.
High inflation is becoming the biggest challenge to the global economy
“High inflation is becoming the biggest challenge to the global economy,” Guo said. “The central banks of major developed economies have aggressively tightened monetary policy, which is likely to trigger a widespread economic recession in Europe and the United States.”