China’s central bank will use policy tools such as the reserve requirement ratio (RRR) and medium-term lending facility to weather the challenges facing the world’s second-largest economy, a senior bank official said on Friday.
Momentum in China’s post-COVID recovery has slowed sharply after a brisk pickup in the first quarter, increasing pressure on policymakers for fresh stimulus measures.
According to the needs of the economic and price situation, the People’s Bank of China (PBOC) “will make comprehensive use of various monetary policy tools, such as the reserve requirement ratio, medium-term lending facility, open market operations,” said Zou Lan, head of the PBOC monetary policy department.
“In recent years, China has insisted on implementing a prudent and normal monetary policy, with sufficient policy space and abundant policy tools,” Zou told a press conference, adding that the bank will keep credit growth appropriate and guide banks to increase lending to small and private firms.
Zou said there is room for making “marginal optimisation” of property polices considering profound changes in supply and demand in the real estate market.
China’s exports fell last month at their fastest pace since the onset three years ago of the COVID-19 pandemic, data showed on Thursday. The economy likely grew 7.3 per cent in the second quarter from a year earlier due to a low base, according to a forecast of Monday’s data in a Reuters poll, but momentum is rapidly faltering.
The central bank cut the RRR – the amount of cash that banks must hold as reserves – in March, and cut its benchmark lending rates by a modest 10 basis points in June, the first such reduction in 10 months.
Downward price pressure is building as consumer prices teetered on the edge of deflation and producer deflation worsened in June.
However, PBOC Deputy Governor Liu Guoqiang said China has not seen deflation and there were no deflationary risks for the second half.
China’s cross-border capital flows were basically balanced and the country will prevent sharp fluctuations in the yuan, Liu told the press conference. The currency rose on Friday, partly on Liu’s reassurances.
