PBOC Panel Signals Shift to Growth and Market Stabilization

(Bloomberg) -- China’s central bank said it’ll keep economic development steady and stabilize market expectations, and reiterated a more cautious tone on debt containment.

The People’s Bank of China will keep a close eye on domestic and global economic developments and step up "forward-looking policy fine-tuning," according to a statement released Thursday after a meeting a day earlier of the monetary-policy advisory committee led by Governor Yi Gang. The meeting was the panel’s first since Yi took office in March.

The stress on economic growth wasn’t mentioned in a statement released after the last meeting at the end of 2017, signaling that the central bank is ready to pay more attention to growth stabilization amid a domestic economic slowdown and rising trade tensions.

The PBOC will lower the reserve ratios for some banks as of next Thursday -- the third cut this year -- as it strives to keep a balance between debt control and stable growth.

The central bank will work to "make sure the structural deleveraging progresses with the right strength and at the right pace," the statement said, echoing a comment Yi made in an interview with the Shanghai Securities Daily last week. That dials back the stance from the previous meeting, at which the panel called for "effective control of macro leverage ratio."

Fine-tuning policy

The report from the central bank is seen as a signal that China’s monetary policy will be a bit looser than earlier expected, said Shen Zhengyang, Shanghai-based strategist with Northeast Securities Co. This shows authorities’ support for the market and helps sentiment, he said.

The Shanghai Composite Index was up 1.1 percent from a two-year low at 10:54 a.m. local time.

The statement reflects a "fine-tuning" in the PBOC’s stance, a correction from overly tight monetary policy to neutral, which means marginal easing, according to Ding Shuang, chief economist for Greater China & North Asia at Standard Chartered Bank Ltd. in Hong Kong. "Now the central bank isn’t that worried about the overall debt. It’s becoming more patient on dealing with the leverage problem."

While monetary policy should remain prudent and neutral, the PBOC will keep a balance between tightening and easing and ensure appropriate and sufficient market liquidity, the statement said. The fundamentals of China’s economy are "basically fine," with growth relying less on external demand and more capability to deal with external shocks, it said.

Still, there are “deep-rooted problems” in the economy and the global economic outlook is "ever more complex," the report said.

The 14-seat advisory panel doesn’t decide policy but its stance is important because the minutes of its meetings will be presented to top leaders along with central bank policy proposals and decisions, according to the work guideline of the committee. Yi started his career at the central bank as deputy secretary-general of the panel from 1997 to 2002.

"The panel will possibly play a bigger role in the future, especially in terms of communicating policy direction. Although it’s not a decision-making body yet, it can be the voice of the central bank," Ding said.

--With assistance from Amanda Wang.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger, Henry Hoenig

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