PBOC vows ‘appropriate’ monetary policy, sees inflation rising
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THE People’s Bank of China (PBOC) pledged on Monday (May 15) to keep the overall amount of monetary policy in the economy “appropriate” while interest rate levels will remain reasonable, as debate intensifies over whether the recovery needs more support.
Noting that inflation was “mild” and may gradually rebound in the second half of 2023, the central bank stressed in its first-quarter monetary policy report that China is not in “deflation”.
The gap between economic expansion, inflation and broad money growth is a result of a delay in the recovery of demand in China, the central bank said, along with the effect of supportive policies.
Recent data has suggested the recovery is patchy, raising questions about how sustainable it is. The rebound for the services sector has far outpaced still-weak manufacturing activity. Consumer prices barely grew in April, borrowing slumped and imports plunged, adding to concerns about demand.
So far, the PBOC hasn’t offered much in the way of aggressive stimulus, while Chinese leaders signalled last month it’s too early to pivot towards tighter monetary and fiscal measures.
They’ve instead appeared to take a wait-and-see approach. The People’s Bank of China on Monday injected more long-term liquidity into the financial system but kept a key policy rate unchanged.
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The PBOC said in a special section of its report that the weighted average rate of new loans granted in March was 4.34 per cent – a historically low level.
The central bank noted in that section that it has adopted a cautious approach to making rate decisions in recent years, so as to leave room for adjustments. This is because of uncertainty facing the global economy, it added.
It also vowed to make its support for the economy more sustainable, while paying attention to marginal changes in inflation.
As the economy recovers, people are likely to gradually release their precautionary savings, the PBOC said in its report. It also reaffirmed its stance towards implementing forceful and target monetary policy, as well as balancing economic growth and price stability. BLOOMBERG
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