(Bloomberg) -- China’s central bank Governor Yi Gang signaled monetary policy will largely be stable this year, saying interest rates in the economy are appropriate, inflation will remain under control and the currency’s volatility wasn’t a concern.  

In a rare media briefing, Yi said in Beijing on Friday that real interest rates are at a relatively appropriate level. He hinted at supporting the economy in other ways, saying cuts to the reserve requirement ratio remain an effective way for the People’s Bank of China to provide long-term liquidity. Price stability is the basis of a stable currency, he added.

The economy is showing signs of a rapid recovery from its Covid slump, with investors on watch for a shift in the central bank’s policy stance as growth accelerates. Economists have lowered their expectation for major easing steps such as interest rate cuts after the PBOC recently gave an optimistic outlook for the economy and signaled more tolerance for higher market interest rates.  

The PBOC will adjust monetary policy at the appropriate time, Deputy Governor Liu Guoqiang said at the same briefing. Officials won’t suddenly scale back or roll out big stimulus, he said. Inflation is also expected to stay mild in 2023 and “the overall inflation pressure is manageable,” he added.

Senior Chinese officials have been surprised by the early peak in Covid infections and the subsequent recovery in the economy, Bloomberg reported this week. Manufacturing and services activity rebounded more than expected in February, home sales rose for the first time in 20 months — albeit from a low base — and traffic congestion in major cities is back to levels seen a year ago.

Economists surveyed by Bloomberg predict the government will set a growth target of higher than 5% when it releases its economic goals on Sunday during the National People’s Congress, the annual parliamentary gathering. Some analysts expect a target of around 5.5% or more.  

Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc, said he still sees the need for the PBOC to cut the reserve ratio for banks and interest rates, although the level of policy rates is “is expected to remain stable in the short term.”

“It is worth paying attention to the RRR cut window period in April and October,” as reductions in the ratio can support the real economy from both the aggregate and structural perspectives.

While it’s a tradition for top Chinese government officials to address the media around the time of the NPC, the PBOC governor hasn’t held an in-person press briefing in the past three years during the pandemic. This is likely Yi’s last public event as governor since he’s likely to step down in a government leadership reshuffle at the NPC. 

Veteran banker Zhu Hexin, currently chairman of state-owned financial conglomerate Citic Group Corp., is being considered to replace Yi, according to a person familiar with the matter. He Lifeng — who is expected to replace Liu He as China’s vice premier responsible for economic policy — is being considered for the role of party secretary at the PBOC, the Wall Street Journal has reported. 

Here are some additional highlights from the PBOC press briefing:

Property

On the property market, which has been in a prolonged slump, central bank officials reiterated their objective for a healthy sector. Deputy Governor Pan Gongsheng said China will maintain existing property policies, and push for the property sector to move to a new development model. He also repeated the government’s slogal that housing is for living in, not for speculation.

The PBOC has guided banks to provide normal financing to property developers, he said, and the overly fast expansion of the property sector has been contained.

Currency

Governor Yi said the yuan exchange rate mechanism has been increasingly flexible and China should maintain the currency’s managed-float system. He emphasized the exchange rate is more volatile than before, but that’s not been a problem for businesses or households.

The exchange rate of 7 yuan per US dollar is no longer a psychological hurdle for China, Yi said, since the currency weakened past that level for three times in past years.

The yuan has weakened from this year’s high in January and is trading close to 7 to the dollar. The depreciation is largely due to a rallying dollar — which has been fueled by the Federal Reserve’s increasingly hawkish outlook — as well as geopolitical tensions between the US and China.

Consumer Savings

The increase in household bank deposits is due to reduced consumption during the pandemic and low risk appetite when making investments, Liu said. As the economy improves, confidence in consumption and investment is expected to strengthen.

He also reiterated the PBOC won’t flood the economy with excessive stimulus. Consumption demand is increasing gradually in China, and the PBOC will provide financial services to help expand consumption, he said. 

--With assistance from Wenjin Lv and Heng Xie.

(Updates with comment from analyst.)

©2023 Bloomberg L.P.