China's central bank signals caution over credit boost as demand weakens
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[April 18, 2024] By
Kevin Yao
BEIJING (Reuters) -There is still room for China's central bank to take
steps to support the economy, but efforts are needed to prevent cash
from sloshing around the banking system as real credit demand weakens,
senior officials at the bank said on Thursday.
The world's second-biggest economy grew faster than expected in the
first quarter, but several March indicators, such as property
investment, retail sales and industrial output showed that domestic
demand remains frail, weighing down momentum.
The People's Bank of China (PBOC) has pledged to step up policy support
for the economy this year and promote a rebound in prices.
"A series of monetary policy measures introduced earlier are gradually
taking effect, and the economy continues to rebound with a good start,"
Zhu Hexin, a deputy governor of the PBOC, told a news conference on
Thursday.
"There is still room for monetary policy going forward, and we will
closely watch the policy effectiveness, economic recovery, and
achievement of goals, and make good use of reserve tools at the
appropriate time."
China's central bank cautioned on Thursday against a "one-sided" pursuit
of credit expansion after data showed a slowdown in bank lending, vowing
to prioritise the quality of credit over size and move to revitalising
existing loans.
Zou Lan, head of the PBOC's monetary policy department, told the
briefing that efforts should be made to prevent the accumulation of
"idle funds" as some banks extend more loans than actually needed and
some firms use low-cost loans to buy wealth management products or lend
to other firms.
"Credit demand has weakened compared to previous years, and the credit
structure is also being optimised and upgraded," Zou said, adding that
China's money supply growth could slow down and people should not simply
look at year-on-year growth.
The central bank has in recent weeks delivered modest cuts in banks'
reserve requirement ratio (RRR) and interest rates as part of broad
measures to support the economy, with more policy easing expected in the
coming months.
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People wait for a subway train during morning rush hour in Beijing,
China April 11, 2024. REUTERS/Tingshu Wang/ File photo
RATES CANNOT BE TOO LOW
Real interest rates, when adjusted for producer prices, remain
elevated for some industries - including ferrous metal producers,
but high borrowing costs will help promote capacity control and
inventory reduction among firms, Zou said.
"We should avoid weakening the driving force of structural
adjustments and prevent excessively low interest rates," he said.
New bank lending in China rose less than expected in March from the
previous month, while broad credit growth hit a record low, boosting
the case for the central bank to roll out more stimulus steps to
help achieve an ambitious growth target.
China has set an economic growth target for 2024 of around 5%, which
many analysts say will be a challenge to achieve without much more
stimulus.
The central bank said 2024 growth of money supply and total social
financing - a broad measure of credit and liquidity in the economy -
would match expected goals for economic growth and inflation.
Analysts polled by Reuters expected the central bank to cut the
banks' reserve requirement ratios (RRR) by 25 basis points (bps) in
the third quarter, following a 50-basis point cut earlier this year,
which was the biggest in two years.
China's central bank might include the buying and selling of
treasury bonds in its policy tool reserve in future, Financial News
- a publication backed by the PBOC - quoted experts as saying.
China has the conditions to keep its foreign exchange market stable,
Zhu said. China's "goal and determination in keeping the yuan
exchange rate basically stable will not change," he added.
(Additional reporting by Liangping Gao and Winni Zhou; Editing by
Alex Richardson, Ros Russell and Toby Chopra)
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