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 Under the banner of prudent policy, the Chinese central bank has cut
interest rates six times since November 2014 and has also reduced
the amount of cash that commercial lenders must hold as reserves.
The last policy easing was on Feb. 29 when the People's Bank of
China (PBOC) lowered the reserve requirement ratio.
The central bank is trying to keep liquidity flush to support an
economy undergoing the most significant structural reforms in two
decades. But officials, including Zhou, have warned against
excessive policy loosening that could intensify downward pressure on
the yuan <CNY=CFXS> and spur capital outflows.
"The current monetary policy is prudent with a slight loosening
bias," Zhou told to reporters at a scheduled news conference in
Beijing on Saturday on the sidelines of the annual parliament
session.
"We also want to stress that monetary policy should be adjusted
dynamically depending on the judgment towards the economic
situation," he added.
Zhou outlined the PBOC's five monetary policy stances as "loose",
"appropriately loose", "prudent", "appropriately tight" and "tight",
with flexibility on either side of each. China adopted an
"appropriately loose" policy after the 2008 global crisis before
shifting to a "prudent" stance in 2011.
"We would adjust our monetary policy on a real-time basis. If there
are big changes in the domestic and global environment, we will keep
the flexibility in monetary policy to counter shocks," Zhou said.
Central banks in Europe and Japan have resorted to negative interest
rates in attempts to stimulate consumer demand and stoke worryingly
low inflation. But the strategy has increased volatility in the
financial markets and raised the specter of competitive currency
devaluation.
Zhou said China does not need to use currency policy to boost trade,
reaffirming Beijing's stance that it will not rely on yuan
depreciation to drive exports.
Jin Zhongxia, executive director for China on the International
Monetary Fund's policymaking board, said at a conference in New
Delhi on Saturday he did not expect a "very dramatic" depreciation
of yuan.
ECONOMIC PULSE
Yi Gang, a vice central bank governor, told the same briefing that
he expected China to achieve its annual economic growth target this
year.
The government has set a growth target of 6.5 percent to 7 percent
for in 2016. The world's second-largest economy expanded 6.9 percent
in 2015, its slowest pace in 25 years.
"It's not necessary to take excessive stimulus to achieve the
(growth) target," Zhou said.
Rapidly easier credit conditions could also stoke the country's
property market, which is showing signs of heat in the big cities,
and put upward pressure on consumer inflation.
Banks have followed the central bank's cues, slowing their lending
from January's record splurge, central bank data released on Friday
showed.
Net new yuan-denominated loans fell to 726.6 billion yuan ($111.80
billion) from 2.51 trillion yuan a month earlier and significantly
undershot economists' expectations of 1.2 trillion yuan.
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Meanwhile, data released on Saturday showed continuing weakness in
other key parts of the economy.
China's manufacturing output in January and February grew at its
weakest pace since 2008, according to data released by the National
Bureau of Statistics.
Retail sales, a gauge of domestic consumption, rose at the slowest
rate since May 2015.
However, fixed-asset investment, a crucial driver of the economy,
gained 10.2 percent in the first two months from a year earlier.
"Fixed-asset investment growth picked up due to stronger real estate
investment," said Li Huiyong, an economist at Shenyin & Wanguo
Securities in Shanghai.
"The economy still needs support from loose monetary policy and
expansionary fiscal policy going forward. Apart from the expansion
of the (budget) deficit to implement tax cuts, the central
government needs to maintain infrastructure investment."
HOUSING OVERHANG
Despite the pickup in property investment, Zhou said on Saturday
that China's housing market on the whole is facing major oversupply
issues.
His comments are in line with the government's willingness to
tolerate surging prices in the country's biggest metropolises as
Beijing takes steps to flush out a huge inventory overhang in
smaller cities.
To boost the housing market, China has cut downpayments for first-
and second-time home buyers and lowered transaction taxes for some
home buyers.
In contrast, authorities in China's biggest cities have already
announced measures to cool their markets in response to strong sales
and prices, state media reported this month, citing Housing Minister
Chen Zhenggao.
Prices in the southern industrial city of Shenzhen surged nearly 52
percent in January from a year earlier.
"Banks should also make their own judgment to review clients'
ability to pay and their financial risks," Zhou cautioned.
(Additional reporting by Winni Zhou; Writing by Ryan Woo; Editing by
Sam Holmes)
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