People’s Bank of China (PBOC) Governor Yi Gang (易綱) yesterday pledged to keep policy flexible to support the slowing economy, with steps such as helping small firms and sectors hit by COVID-19 outbreaks, reinforcing expectations that it would roll out more modest easing measures.
However, Yi also said that price stability should be maintained amid high global inflationary pressures.
“China’s monetary policy is accommodative and is in a comfortable range. We also stand ready to support small and medium-sized enterprises with more instruments if needed,” Yi said in a video speech to the annual Boao Forum for Asia.
Photo: Bloomberg
The comments came as a growing number of analysts cut their China growth forecasts due to extended COVID-19 lockdowns in many large cities, which are home to clogged highways and ports, stranded workers and shut factories.
With activity faltering, China watchers say more stimulus measures will be needed soon if the government wants to meet this year’s growth target of about 5.5 percent.
However, they say the room to ease policy could be limited by worries it could fuel capital outflows and inflation. Moreover, traditional tools such as interest rate cuts might have only limited impact if consumers and businesses remain locked down.
Prices of commodities, food and housing soared worldwide last year, and the Ukraine war has added even more momentum to global inflation, threatening economic recoveries and financial stability worldwide.
“The international landscape is fraught with uncertainties,” Yi said.
“Recently, geopolitical tensions have further pushed up inflationary pressures worldwide. China’s financial market is not immune to the external shocks, and the domestic COVID-19 situation is also putting more downward pressure on growth.”
The PBOC is ensuring price stability, while stable grain output and energy supplies ensure that China’s inflation remains within a reasonable range this year, Yi said.
Consumer inflation quickened more than expected, to 1.5 percent last month from 0.9 percent in February, official data showed, although it is not running as hot as in many other countries. The government has set an annual price target of about 3 percent for this year.
In contrast to most major economies that have begun to tighten monetary policy to combat inflation, China has stepped up its easing measures to cushion its slowdown.
Last week, the PBOC said it would cut the amount of cash that banks must hold as reserves for the third time in nine months. However, the bank on Tuesday surprised many investors by keeping its benchmark lending rates unchanged.
Analysts said that the PBOC’s caution could also reflect concerns about the market impact of aggressive monetary tightening expected from the US Federal Reserve in coming months, which could lure funds back to higher-yielding US assets.
China’s stock markets are the second worst performers globally this year after Russia, which has been hit by sanctions.
The IMF on Tuesday cut this year’s growth forecast for China to 4.4 percent, well below Beijing’s target, citing widespread lockdowns and supply chain disruptions.
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