[BEIJING] A plan by China's central bank to expand a pilot relending scheme to help small firms and the farming sector cannot be interpreted as a policy of quantitative easing, the chief economist at the People's Bank of China said on Wednesday.
The plan to expand the scheme for lending to commercial banks that use high-quality credit assets as collateral has fanned market speculation the central bank could kick off a round of quantitative easing (QE) to stem the slowing economy.
But markets have been "misreading" the relending expansion, Ma Jun said in an email statement, adding that the latest step"will not have any significant impact on the overall liquidity and it's not the Chinese version of QE."
But Mr Ma conceded the central bank needed to find new ways of injecting liquidity into the economy, as the traditional channels of pumping in money via foreign exchange purchases diminish.
Analysts say a wave of capital outflows has put pressure on the central bank to cut banks' reserve requirements to spur money supply, as economic growth grinds towards a 25-year low.
Adding credit assets to the existing collateral, including treasury bonds, central bank bills and high-quality corporate debt for central bank relending will help banks boost lending to small firms and farms, Mr Ma said. "Expanding the range of eligible collateral does not mean that the central bank will launch large-scale liquidity injections," he said.
The central bank has already cut interest rates five times since November, and reduced the amount of cash reserves that banks must hold, in an effort to spur activity.
But some analysts say such moves have not been as effective as in the past, when the economy was more tightly controlled and debt levels were much lower.