A man rides a scooter past the People’s Bank of China (PBOC) headquarters in Beijing, China, on Monday. (Photographer: Qilai Shen/Bloomberg)

PBOC Vows No ‘Strong’ Stimulus, Says Won't Use Yuan in Trade War

(Bloomberg) -- China’s central bank said it won’t use the yuan as a tool to cope with trade tensions and other external issues, and that it won’t conduct any “strong” economic stimulus.

The People’s Bank of China won’t implement stimulus in “flood-irrigation” style, according to the quarterly monetary policy report released Friday night in Beijing. Prudent monetary policy should maintain neutrality and “keep balance between tightening and easing,” indicating a slightly easier bias than it did three months ago.

The central bank has been treading a very difficult path -- it’s responsible for cracking down on growing bad debt across the country, but also must make sure that companies can borrow money to invest and continue to drive growth. That task has been made more difficult by the trade war with the U.S. and an economy that’s already slowing down.

The bank said it will flexibly use a combination of multiple monetary policy tools and further enhance macro-prudential management of the economy. It will also improve financial services through increasing supply and competition, according to the report.

While the PBOC sees risks from rising trade tensions, financial volatility in emerging markets and global financial fragility, it said it would not competitively devalue the yuan, nor use it as a tool to cope with external shifts such as trade tensions.

Those currency comments show that the bank will take a hands-off approach to the foreign exchange market on normal days, but intervene in the event of any massive fluctuations, chief macroeconomy analyst Zhu Qibing at BOC International China Ltd. in Beijing said.

The task of achieving high-quality growth will be “arduous,” the bank said, striking a more concerned tone than in the report last quarter. And while the tightening of local financing and slowing infrastructure investment growth will weigh on the economy in the short-term, it will be beneficial in the longer run.

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