The People’s Bank of China vowed to step up support for the economy as the recovery is still facing uncertainties, adding that credit growth will be kept “reasonable.”
(Bloomberg) — The People’s Bank of China vowed to step up support for the economy as the recovery is still facing uncertainties, adding that credit growth will be kept “reasonable.”
“The economy is showing a recovering and improving trend, but the foundation of the recovery is not yet solid,” the PBOC said in a statement Friday after its monetary policy committee concluded its quarterly meeting. The meeting was held a week ago and chaired by Governor Yi Gang.
The central bank will “maintain reasonable credit growth at a stable pace,” according to the statement. It vowed to make use of both aggregate and structural monetary policy tools, which is a phrase seen by some analysts as a signal for potential broad easing steps. The bank also reiterated a pledge to support the expansion of domestic demand as well as keep liquidity reasonably sufficient.
China’s economic recovery from Covid is gathering pace, with data pointing to a strong rebound in services activity after virus restrictions ended. Credit expansion beat expectations in the first quarter, and exports surprisingly jumped last month.
The central bank cut the reserve requirement ratio, or the amount of cash banks must keep in reserves, in March to inject long-term liquidity in the banking system and thus boost lending. However, the economy is still facing headwinds, with other economic indicators — including weak inflation and easing manufacturing purchasing managers index — suggesting domestic demand may still be weak.
Economists are divided on whether the central bank will need to unleash further monetary stimulus in the form of RRR or interest rate cuts to aid the economic recovery. PBOC Governor Yi Gang said earlier this week that China is expected to achieve its growth target this year as the property market improves.
The central bank repeated the target that it aims for credit to grow at about the same pace as nominal gross domestic product, although the 10% expansion in total social financing in the first quarter was likely quite a bit faster than the growth of the economy.
“The economy is recovering but the pace has not been as fast as the growth in credit supply,” said Standard Chartered Plc’s Chief China Economist Ding Shuang. “Credit offering should be slowed going forward as it has not fully been used in the real economy. The window guidance for banks to lend more may have been a bit overdone.”
The PBOC noted external challenges in the report, saying that global growth is slowing and financial markets have become more volatile due to the monetary policy tightening in advanced economies. The central bank reiterated it will implement a prudent monetary policy in a targeted and forceful manner, while making its best effort to stabilize growth, employment and prices.
–With assistance from Fran Wang.
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