BEIJING (Reuters) — China’s central bank will adjust monetary policy in a timely and appropriate manner, and cutting banks’ reserve requirements to release long-term liquidity will still be an effective tool to support the economy, top bank officials said on Friday.
Policymakers are looking to support a nascent recovery in the world’s second-largest economy after last year’s COVID-induced slump. Recent data shows activity is bouncing back at a better-than-expected pace, but China still faces many challenges including a weak property market and faltering exports.
“The PBOC will provide ‘forceful’ financial support for the stable and healthy development of the economy,” People’s Bank of China Gov. Yi Gang told a news conference.
The focus of structural monetary policy will be on green finance, tech innovation, infrastructure and housing, he said.
China is becoming increasingly ambitious with its 2023 growth target, aiming potentially as high as 6%, in a bid to boost investor and consumer confidence and build on the promising post-pandemic recovery, sources involved in policy discussions told Reuters this week. The government is expected to unveil more stimulus during this month’s National People’s Congress.
Liu Guoqiang, a deputy PBOC governor, said China’s economy is recovering but still faces some uncertainties and more policy support is needed.
“We will adjust monetary policy tools in a timely and appropriate manner, based on changes and needs in economic development,” Liu said, adding that inflation will be modest in 2023 although some vigilance is needed.
China will not resort to “flood like” stimulus, Liu added.
Responding to a question on whether the central bank will lower interest rates or cut banks’ reserve requirement ratios (RRR) again, Yi said that China’s real interest rates are at an appropriate level now.
The PBOC has cut the RRR 14 times since 2018, to less than 8% from the nearly 15%, so it is still “an effective way” to provide long-term liquidity and support the real economy, Yi said.
China cut the RRR in December, the second time last year, releasing about 500 billion yuan ($72.39 billion) in long-term liquidity to prop up a faltering economy hit by COVID-19.
The PBOC will evaluate its structural policy tools, which totaled 6.4 trillion yuan ($927.44 billion), as it seeks to provide long-term support for some key sectors, Liu said.
Since 2020, the central bank has expanded its arsenal of tools, including relending and rediscount facilities and other low-cost loans.
The PBOC is likely to avoid aggressive stimulus that could risk capital outflows from China, weakening the yuan, as the Federal Reserve continues to raise interest rates to fight inflation, analysts said.
At the same news conference, deputy PBOC Gov. Pan Gongsheng said the interest rate differential between China and the United States will remain stable or narrow as the intensity of policy tightening by the Fed eases.
Pan also said bubbles in China’s property sector have been curbed as measures to support the industry are gaining traction.
Property transactions have increased as confidence improves, while the financing environment of the sector, especially high-quality developers, has improved significantly, Pan said.
China will push forward with the transformation of the property sector and insist that housing is for living in, not for speculation, Pan added.