Date
19 November 2018
PBoC governor Yi Gang said China is facing “tremendous uncertainties” due to the impact of tariffs and trade frictions and is seeking a “constructive solution” to the current trade tensions. Photo: Bloomberg
PBoC governor Yi Gang said China is facing “tremendous uncertainties” due to the impact of tariffs and trade frictions and is seeking a “constructive solution” to the current trade tensions. Photo: Bloomberg

China has plenty of room for monetary adjustments: PBoC chief

People’s Bank of China governor Yi Gang said he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant, Reuters reports.

China faces “tremendous uncertainties” due to the impact of tariffs and trade frictions and is seeking a “constructive solution” to the current trade tensions, the PBoC chief said at a seminar on the sidelines of the annual International Monetary Fund and World Bank meetings on the Indonesian island of Bali.

“We still have plenty of monetary policy instruments in terms of interest rate policy, in terms of RRR. We have plenty of room for adjustment, just in case we need it,” Yi said.

Beijing and Washington have slapped tariffs on each other and plans for bilateral trade talks to resolve the dispute have stalled, triggering a market rout and putting pressure on China’s already softening economy and weakening currency.

Yi said China’s economic growth will still comfortably reach its full-year target of around 6.5 percent in 2018 with the possibility of overshooting, adding that he is comfortable with current inflation levels.

China has implemented four RRR cuts this year, releasing billions in new liquidity to the market, and used other tools to push down corporate lending rates, but Yi said trade tensions with the US could hit the economy further.

“I think the downside risks from trade tensions are significant,” the central bank chief said. “Tremendous uncertainties [are] ahead of us.”

Yi said China’s monetary stance is still basically neutral, without an easing or tightening bias, adding that he believes the amount of liquidity pumped into the market is appropriate to stabilize leverage.

In an interview with Bloomberg, Yi said the currency is at a “reasonable and equilibrium level”, although the central bank is preparing for a range of risks in its currency policy.

“Our overall leverage has been stabilized, so that is an achievement. The recent decrease of RRR or other monetary instruments is basically to supply adequate liquidity,” he told Bloomberg.

Yi sees China’s consumer price inflation coming in at around 2 percent for the year and producer price inflation falling to 3 to 4 percent.

Regarding the trade conflict with the US, Yi told Bloomberg: “We are sincere to show that we are willing to have a constructive solution. And a constructive solution is better than a trade war, which is lose-lose.”

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