China’s reserve requirement ratio (RRR) is at an appropriate level and there is limited room for further cuts, a central bank official said on Thursday.
China will make timely adjustments to benchmark deposit rates, and should pay more attention to changes in real interest rates when discussing whether to cut interest rates, Sun Guofeng, head of monetary policy department of the People’s Bank of China (PBoC) told a news briefing in Beijing.
Real interest rates have been falling significantly and funding costs for small firms also declining, Sun added.
The PBoC has cut RRR eight times since early 2018, including one earlier this month, to help shore up the cooling economy. Analysts have forecast more this year.
New bank lending in China fell more than expected in December, but lending for all of 2019 still hit a record.
The PBoC has tried to boost bank lending and lower financing costs in the past two years, especially for smaller and private companies which generate a sizeable share of the country’s economic growth and jobs.
Chinese banks extended 1.14 trillion yuan (US$165.45 billion) in new yuan loans in December, down from 1.39 trillion yuan in November and falling slightly short of analyst expectations, data from the PBoC showed on Thursday.
Analysts polled by Reuters had predicted new yuan loans would fall to 1.19 trillion yuan in December.
Outstanding yuan loans grew 12.3 percent from a year earlier, a notch below the 12.4 percent growth forecast by analysts and November’s pace, which was also 12.4 percent.
“Growth in outstanding broad credit was unchanged last month as a slowdown in bank loans outstanding was offset by an easing contraction in shadow credit,” Capital Economics said in a report.
With recent easing measures having little impact so far on credit growth, that could strengthen the case for additional rate cuts, the research consultancy said.
Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, was up 10.7 percent in December from a year earlier, in line with November’s growth.
TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.
In December alone, TSF rose to 2.1 trillion yuan from 1.75 trillion yuan in November. Analysts polled by Reuters had expected it to come in at 1.7 trillion yuan.
PBoC officials told a briefing on Thursday that the central bank had recently revised the way it calculates TSF.
China had allowed local governments to issue more debt in 2019 as part of a plan to accelerate infrastructure spending and stoke domestic demand.
The government has brought forward 1 trillion yuan of its 2020 local government special bonds quota, following the issuance of 2.15 trillion yuan in such bonds last year.
Analysts say faster credit expansion will be key to stabilizing economic growth, which cooled to 6 percent in the third quarter of 2019, the slowest since the early 1990s.
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