People’s Bank of China (PBOC) Governor Yi Gang said the central bank will increase implementation of prudent monetary policy to support the real economy as Covid-19 and external shocks drag down the economy.
Yi made the comments on monetary policy via videolink during the meeting of G20 finance leaders in Indonesia, the People’s Bank of China said in a statement.
At the G20 finance meetings in Bali, Chinese Finance Minister Liu Kun said by videolink that China will donate $50 million to a new pandemic prevention and response fund being set up by the World Bank.
On Friday, China reported that growth slowed sharply in the second quarter, increasing just 0.4% on the year, lagging expectations, as the world’s second-largest economy was hobbled by widespread lockdowns to extinguish outbreaks of Covid-19.
While June data showed signs of improvement, analysts do not expect a rapid recovery as China sticks to its tough zero-Covid policy, the country’s property market is in a deep slump and the global outlook is darkening.
‘Monetary Policy Has Room To Meet Challenges’
Meanwhile, in a commentary on Sunday, the state-owned Securities Times said China’s monetary policy has ample room and sufficient tools, including further cutting banks’ reserve requirements, to cope with new challenges amid a shaky economic recovery.
“Looking out to the second half of the year, the foundation of our economic rebound is still not solid and economic operations still face many uncertain and unstable factors,” the commentary said.
“In terms of coping with new challenges and changes that may exceed expectations, monetary policy has sufficient space and ample tools.”
But many analysts believe PBOC has only limited room for further easing due to worries about capital outflows, as the US Federal Reserve and other central banks aggressively raise interest rates to fight soaring inflation.
The Securities Times commentary cited China’s relatively constrained monetary policy stance during the pandemic, preemptive policies to stabilise capital outflows, including cuts in banks’ foreign exchange reserves and a more flexible yuan currency, among factors that would provide a buffer to outside shocks.
“We will … keep the yuan exchange rate basically stable on a reasonable and balanced level and proactively and steadfastly manage new challenges and new changes,” it said.
- Reuters with additional editing by Jim Pollard