BOAO, China: China’s central bank chief pledged on Friday (Apr 22) to keep policy accommodative to support the slowing economy, with steps such as helping small firms and sectors hit by COVID-19 outbreaks, reinforcing expectations it will roll out more modest easing steps.
But Yi Gang, governor of the People’s Bank of China (PBOC), also underlined the need to maintain price stability amid high global inflationary pressure.
“China’s monetary policy is accommodative and is in a comfortable range. We also stand ready to support small and medium-sized enterprises with more instruments, if needed,” Yi said in a video speech to the annual Boao Forum for Asia.
“So with that outlook, certainly we have an accommodative monetary policy supporting our real economy throughout this year.”
The comments came as a growing number of analysts cut their China growth forecasts due to extended COVID-19 lockdowns in many big cities, which have clogged highways and ports, stranded workers and shut factories.
With activity faltering, China watchers say more stimulus measures will be needed soon if the government wants to meet its 2022 growth target of around 5.5 per cent.
But they say the room to ease policy could be limited by worries it could fuel capital outflows and inflation. Moreover, traditional tools such as interest rate cuts may have only limited impact if consumers and businesses remain locked down.
GROWING PRESSURE
Prices of commodities, food and housing soared worldwide last year and the Ukraine war has added even more momentum to global inflation, threatening economic recoveries worldwide and global financial stability.
“The international landscape is fraught with uncertainties,” Yi said.
“Recently, geopolitical tensions have further pushed up inflationary pressures worldwide. China’s financial market is not immune to the external shocks and the domestic COVID-19 situation is also putting more downward pressure on growth.”
The PBOC will ensure price stability, while stable grain output and energy supply will ensure China’s inflation will remain within a reasonable range this year, Yi said.
Consumer inflation quickened more than expected, to 1.5 per cent in March from 0.9 per cent in February, official data showed, though it is not running as hot as in many other countries. The government has set an annual price target of around 3 per cent for 2022.
In contrast to most major economies that have started to tighten monetary policy to combat inflation, China has stepped up easing to cushion its slowdown.
Last week, the PBOC said it would cut the amount of cash that banks must hold as reserves for the third time in nine months. But on Tuesday, it surprised many investors by keeping its benchmark lending rates unchanged.
Analysts say the PBOC’s caution could also reflect concerns about the market impact of aggressive monetary tightening expected from the Federal Reserve in the coming months, which could lure funds back to higher-yielding US assets.
China’s stock markets are already the second-worst performers globally this year after sanctions-hit Russia.
The International Monetary Fund on Tuesday cut its growth forecast for China this year to 4.4 per cent, well below Beijing’s target, citing widespread lockdowns and supply chain disruptions.
Foreign finance houses also have been downgrading their forecasts.
Japanese investment bank Nomura on Thursday cuts its China growth forecast to 3.9 per cent for this year from 4.3 per cent its baseline estimates showed. Nomura also believes there is a rising risk of recession unless more support is forthcoming.