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China cenbank to roll out more policy moves to stabilise growth

China set to keep borrowing cost of medium-term loans unchanged
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BEIJING (Reuters) – China’s central bank deputy governor Liu Guoqiang said on Tuesday that the central bank will implement more policy measures to stabilize the economy and move forward along the market curve as downward pressure continues.

The world’s second-largest economy, which has cooled down over the past year, faces multiple headwinds in 2022, including persistent property weakness and a new challenge from the recent domestic spread of the highly contagious Omicron variant.

“Before the downward pressure on the economy is fundamentally eased, we should introduce more stabilizing policies, and we should not implement policies that are not stabilizing,” Liu told a news conference.

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“We must speed up, keep our operations forward, move ahead of the market curve, and respond to general market concerns in a timely manner.”

Liu said the central bank will expand the use of its policy tools to prevent a “collapse” in credit.

On Monday, the People’s Bank of China (PBOC) unexpectedly lowered borrowing costs on its medium-term loans for the first time since April 2020. Read more

Liu said there is still room for the central bank to cut banks’ reserve requirement ratios, although the scope of this has been scaled back by cuts in the past.

He said the average interest rate on loans to financial institutions – the percentage of deposits they must hold as reserves rather than as reserves – is 8.4%.

China’s overall leverage ratio fell 7.7 percentage points in 2021 to 272.5%, Liu said, adding that lower debt levels will create more room for monetary policy. The ratio is expected to be basically stable this year.

liquidity

Liu said that the People’s Bank of China will use various policy tools to maintain reasonably abundant liquidity, and guide financial institutions to expand credit, especially for small businesses, technology innovation and green development.

He said that in 2022, the central bank will maintain the growth of the money supply and total social financing in line mainly with nominal economic growth.

Sun Guofeng, head of the monetary policy department at the People’s Bank of China, said in the same briefing that the loan principal rate (LPR), the benchmark lending rate, will reflect changes in market interest rates in a timely and complete manner.

A cut in the LPR is widely expected on January 20, following the rate cut of the MLF.

The People’s Bank of China (PBOC) last cut the interest rate by 50 basis points on December 15, the second such move last year. This was followed by a 5 basis point cut in the one-year loan principal rate (LPR), the standard lending rate, on December 20.

Liu, the deputy governor, said authorities will maintain an order in bank deposit markets to prevent poor quality banks from raising interest rates to attract customers, as high deposit rates may make it difficult for banks to lower lending rates.

Sun said cross-border capital flows may show some fluctuations due to changes in international financial conditions, but the impact of policy adjustments in developed countries, including the United States, will be limited.

Liu said the yuan’s exchange rate could deviate from its equilibrium levels in the short term, but in the medium and long term, market factors and government policy will help correct the deviations.

Zhou Lan, head of financial markets at the People’s Bank of China, said the central bank will maintain “the continuity, consistency and stability” of real estate financial policies.

He added that real estate sales and financing are gradually returning to normal, and market expectations are improving.

At the end of 2021, he said, China’s total real estate loans rose 7.9% from the previous year to 52.2 trillion yuan ($8.22 trillion), up 0.3 percentage points from the end of September. (dollar = 6.3525 Chinese yuan)

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(Reporting by Kevin Yao and Stella Keogh) Editing by Clarence Fernandez, John Stonestreet and Alex Richardson

Our Standards: Thomson Reuters Trust Principles.

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