China has “tremendous” room to adjust monetary policy if the trade dispute with the US deepens, People’s Bank of China (PBOC) Governor Yi Gang (易綱) said.
“We have plenty of room in interest rates, we have plenty of room in required reserve ratio rate, and also for the fiscal, monetary policy toolkit, I think the room for adjustment is tremendous,” Yi said in an exclusive interview in Beijing.
Asked if his scheduled meeting with US Secretary of the Treasury Steven Mnuchin this weekend would get negotiations with the US back on track, Yi said it would probably be a “productive talk, as always,” although the topic of the trade dispute would be “uncertain and difficult.”
The two are to meet on the sidelines of the G20 gathering of finance ministers and central bank governors in Japan.
That meeting takes place as the two nations escalate their trade dispute amid a darkening outlook for the global economy, with Citigroup Inc and Morgan Stanley warning this week that it risks tipping the world into recession.
This is the first publicly announced meeting since the trade talks fell apart last month and could pave the way for a meeting between US President Donald Trump and Chinese President Xi Jinping (習近平), who is likely to be in Japan at the end of the month for the G20 leaders’ summit.
Mnuchin, along with US Trade Representative Robert Lighthizer, has led the US-China talks, while Yi has been a member of China’s delegations.
Commenting at the end of a week in which the US Federal Reserve and European Central Bank sounded more open to easing monetary policy, and with Australia and India already cutting rates, Yi said that China’s monetary policy has “to be in a sober mind position,” and the policy stance is prudent.
“I think our benchmark interest rate right now is in right level. I would say in terms of resources allocation at this level, I call it very close to golden level,” he said.
Yi gave no indication that the government was considering more fiscal stimulus to counteract the effects of the trade dispute.
“Our fiscal policy this year is probably the largest and strongest fiscal reform package, in terms of the tax cuts, and also in terms of having more efficient fiscal resources allocation between the central government and the local government,” Yi said.
“The current package is able to cover the cases where the situation is getting a little bit worse, but of course, if the situation gets tremendously worse, they will open the discussion, but right now they haven’t discussed that scenario yet,” he said.
Beijing is concerned about the effect on employment from any worsening in the dispute.
Economic performance in the first quarter was better than expected, although people’s expectations turned “negative and gloomy” afterward, due to the uncertainty of the trade dispute. Still, the Chinese economy remained resilient.
Asked if the trade dispute could make it harder for US banks to benefit from China’s opening up, Yi said that he hopes “we can treat everybody fairly, equally and minimize the negative impact of trade war.”
It is a two-party game and it is up to the other side to also decide and act in good faith, he added.
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