China’s central bank reiterates easing pledges amid policy dilemmas
Subscribe to enjoy similar stories. China’s central bank again vowed to help the economy grow this year, firming expectations of more monetary easing as it walks a fine line between conflicting policy targets complicated by a possible trade war with the U.S.
Officials at the People’s Bank of China said at a Tuesday briefing that they will ramp up support for the economy with measures like lower interest rates and reducing the amount of cash lenders must hold as reserves to free up liquidity. They also again promised to defend the yuan, and warned against the risk of an overheated bond market.
That followed a meeting Monday by the China Securities Regulatory Commission, where it said it will work with the PBOC to enhance the effectiveness of structural monetary policy tools and strengthen market stabilization mechanisms. The comments add to a chorus of verbal support from Chinese officials on tackling long-simmering issues like weak demand and a property market slump.
Calibrating the right policy fix for the structural problems ailing China’s economy has been complicated by unfavorable market forces, with the yuan under pressure, government bond yields tumbling and equities off to a weak start this year. Bank lending data earlier showed weak bank loan growth last month, and Capital Economics expects sluggish private demand to keep credit growth subdued in the foreseeable future.
Low inflation looks set to keep lending rates restrictive despite PBOC easing, which together with continued declines in asset prices could keep private demand muted, economists said in a note. As investors rush to safe-haven assets, the 10-year Chinese government bond yield plunged to an unprecedented 1.6% this month, widening the yield gap
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