China is in no rush to follow other countries in significantly loosening monetary policy but has ample options to help prop up slowing growth, its central bank head said on Tuesday, maintaining a cautious approach to stimulating the economy.
Despite a slew of growth measures since last year, the world’s second-largest economy has yet to stabilise as the Sino-U.S. trade war shows no sign of ending. Analysts expect growth could cool further this quarter from a near 30-year low of 6.2 per cent hit in April-June.
People’s Bank of China (PBOC) governor Yi Gang said macro-economic policies have significant room to move.
“But we are in no hurry to take measures similar to central banks of other countries, such as relatively big interest rate cuts or quantitative easing polices,” Yi said in a briefing ahead of the country’s 70th anniversary.
China cut its new one-year benchmark lending rate for the second month in a row on Friday, as the central bank seeks to lower borrowing costs to support smaller firms affected by the trade war and wider slowdown.
But the 5 basis point move was far smaller than the U.S. Federal Reserve’s 25 basis point easing of its benchmark overnight lending rate last week.
Yi said there was still plenty of room to maneuver on monetary policy, though such options should be used carefully. He also said that authorities would maintain “normal” monetary policy for as long as possible.
“China’s monetary policy will maintain its prudent orientation,” he said, reiterating Beijing’s pledge not to resort to “flood-like” stimulus.
“I believe that, in the process of monetary policy operations, we should cherish the normal monetary policy room so that we can extend the normal monetary policy as long as possible, which will be favourable for sustainable economic development and people’s livelihood.”
China, while trying to keep its debt levels steady, should step up reforms and improve the monetary policy transmission mechanism to help lower financing costs, Yi said.
Some policy insiders have said the room for the government to step up stimulus measures could be limited by its worries about rising debt risks and possible property bubbles.
Beijing has leaned more heavily on fiscal stimulus to address the current downturn, announcing trillions of yuan in tax cuts and special local government bonds to finance infrastructure projects.
Ning Jizhe, vice head of the National Development and Reform Commission, told reporters at the same briefing that China would step up efforts to stabilise growth, including speeding up project construction and relaxed restrictions on auto purchases.
Ning said cities including Xian, Kunming, Guiyang are considering abolishing or easing restrictions on auto purchases, following recent steps in Guangzhou and Shenzhen.
Local governments will be allowed to issue special bonds earlier than usual in 2020, focusing on areas including transportation, energy, environmental protection, logistics and urban infrastructure, Ning said.
Finance Minister Liu Kun said during the same briefing that local governments are on track to complete bond issuance within the annual quota by the end of September, and allocate proceeds to investment projects by the end of October.
Beijing has set a quota of 2.15 trillion yuan ($302.50 billion) for local governments to sell special bonds this year to fund infrastructure, including road, rail and water projects.