(Bloomberg) -- China’s central bank chief pledged further steps to support his nation’s economic recovery, while cautioning that it won’t be adopting “drastic” measures.
Chinese state media published a pair of interviews with People’s Bank of China Governor Pan Gongsheng on Thursday after key indicators for July suggested the country’s economic growth remains lackluster. Retail sales gains remained subdued, while investment growth weakened — underscoring a faltering in domestic demand amid a prolonged downturn in the housing market.
The PBOC will strengthen efforts to effectively implement monetary and financial policies that have been introduced this year, and further steps will be made in accordance with the requirements of the State Council, Pan said in an interview with state broadcaster China Central Television. Maintaining price stability and promoting a moderate price recovery are important considerations, Pan said, in an apparent reference to enduring deflationary risks.
The interviews offer a rare direct insight into how the central bank chief of the world’s second-biggest economy is thinking about policy. The governor seldom speaks to the media or publicly, although he has been a little more visible this year, announcing a surprise rate cut at a press conference in January and laying out a new monetary policy framework in a speech in June.
The bank will study additional policies in reserve and support proactive fiscal measures, Pan said in a separate interview with Xinhua News Agency, but didn’t elaborate on any measures. At the same time, it’s important to maintain policy patience and stability, as well as refrain from any “drastic tightening or drastic easing,” he said.
“Drastic tightening would make no sense given the current economic conditions,” said Neo Wang, managing director for China research at Evercore ISI in New York. “‘No drastic easing’ should be his sole message. Considering the upcoming rate cuts by the Federal Reserve, we think it indicates moderate cuts to the Loan Prime Rates. Our base-case is two or three 10-basis-point reductions before year-end, depending on China’s economic performance in the third quarter.”
The PBOC will gradually reduce its focus on quantitative targets and put more emphasis on the role of price-related adjustment tools such as interest rates — enriching its monetary policy toolbox, Pan said.
Chinese policymakers have long relied on guidance to financial institutions to accelerate or scale back their extension of credit as a key channel for affecting the economy. But the PBOC has also for some time laid out an objective of elevating the importance of interest rates, which are the main tools used by developed-world central banks.
The PBOC will continue to maintain a supportive monetary policy stance, Pan added. He also said that China’s financial system is relatively stable and that overall risk has eased significantly.
While Pan didn’t shed much light on policies geared toward the property sector, he reiterated that the PBOC is providing a relending program to help fund local-government purchases of unsold homes. The down-payment ratio of mortgage loans has dropped to record low of 15% and interest rates are also very low, he said.
--With assistance from Josh Xiao, Jacob Gu and Lin Cheng.
(Updates with more details from fourth paragraph)
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