PBOC Signals Monetary Policy May Not Ease as Much as Some Hope

(Bloomberg) -- Senior People’s Bank of China officials pushed back against interpretations of its recent moves as signaling significantly looser policy, emphasizing that monetary policy remains prudent -- though it will be more targeted and flexible.

“The stance on prudent monetary policy hasn’t changed,” Sun Guofeng, director of the monetary policy department, told reporters Friday in Beijing. “But it’ll be more appropriate in tightening or loosening because the situation is complex, and policy reactions should be more forward-looking, flexible and targeted.”

Policy makers won’t “flood” the economy with excessive liquidity, he said.

The country’s top leaders have pledged to keep monetary policy prudent while striking an “appropriate” balance between tightening and loosening in 2019, dropping the “neutral” description. The new language, coupled with moves to boost private-sector funding, prompted some economists to predict cuts to bank reserve-ratio requirements or benchmark interest rates next year.

Leaders also made no reference to the yuan in the statement after their annual economic policy meeting this month, removing last year’s reference to keeping the exchange rate “basically stable at a reasonable and equilibrium level.”

The omission “doesn’t represent any changes to policies,” Sun said, and the statement couldn’t include all topics as space was limited. He added that officials took note of the discussion among analysts and investors about the dropped clause and ensured that a separate statement released this week after the monetary policy committee’s quarterly meeting included the language on exchange rates.

Economic Concern

Despite earlier easing measures, the world’s second-largest economy still faces challenges of sluggish investment, weak consumption and the continuing trade war with the U.S. The expansion is inevitably slowing as it transitions from a high-growth, export-led model to a greater consumer focus and more moderate growth. Amid that change, economists surveyed by Bloomberg project 6.2 percent gross domestic product growth in 2019, the slowest since 1990.

Growth is still in a reasonable range, but there are “worrying aspects,” said Ruan Jianhong, head of the central bank’s research and statistics department. She said the main concerns for policy makers are slower global economic growth, sluggish domestic investment and the difficulties confronting small and private economies.

Amid such headwinds, policy makers softened a multi-year deleveraging campaign in 2018. Still, the PBOC closely watches risks related to the property market and online financing, according to Zou Lan, deputy head of the bank’s financial markets department.

“We pay close attention to changes in the funding of property developers, who used to have a relatively high leverage ratio but has come down a little recently,” he said, adding risks to the industry “can be quickly influenced by markets and easily contagious.”

Friday’s comments were made by PBOC officials in a small group interview with media that was part of the central bank’s efforts to improve its public discussion of policy issues.

“We’ve realized that guiding market expectations requires more transparency,” and the central bank will also step up communication with financial institutions during policy making process, said central bank spokesman Zhou Xuedong.

To contact Bloomberg News staff for this story: Sharon Chen in Beijing at schen462@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editors responsible for this story: John Liu at jliu42@bloomberg.net, James Mayger, Jeff Kearns

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With assistance from Bloomberg