China Says Regulators Will Work to Unclog Monetary Transmission

(Bloomberg) -- China said it will pay more attention to “unclogging” the transmission mechanism of monetary policy in order to support the real economy.

The nation needs to balance between stabilizing economic growth and preventing risks, according to a statement published on the State Council’s website on Friday, following a meeting of the Financial Stability Development Committee led by Vice Premier Liu He.

The statement echoed one issued after a Politburo meeting earlier this week, namely that Chinese policy makers are focusing more on supporting economic growth amid risks from a campaign to reduce debt and the trade standoff with the U.S.

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  • The PBOC has cut reserve ratios three times so far this year
  • The central bank is also injecting more funds elsewhere
  • Tax cuts and measures to boost bond sales were rolled out
  • Banks are being given an easier path to more lending
  • The Politburo signals shift to focus on growth

The statement said more work will be done to enhance financial institutions’ support for small-and-micro-sized businesses while ensuring the overall money supply is well controlled. It also vowed to make efficient use of fiscal policy, including tools such as tax cuts and government bond insurance.

The People’s Bank of China has cut reserve-requirement ratios three times this year and also injected record amount of mid-term loans to banks to make sure that liquidity is sufficient. Interbank borrowing costs are at the lowest since early 2017, even lower than the rate of liquidity with the same maturity that the central bank offered in the open market.

Still, banks have found it difficult to lend due to weak deposit growth and shaky capital positions, which has blocked the transmission of looser monetary policy to the real economy.

The committee also pledged to continue financial reforms while vowing to keep cracking down on financial malpractice and illegal financial institutions. The panel also studied structural deleveraging and ways to promote balance of international payments, according to the statement, without giving details.

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