China central bank to keep liquidity ample, weigh policy exit strategy

SHANGHAI: China will keep liquidity ample in the second half of the year, but it should consider in advance the timely withdrawal of policy measures aimed at countering the effects of the COVID-19 pandemic, the country’s central bank governor said on Thursday.

China’s economic fundamentals remain sound and its financial markets are stable overall, Yi Gang told a financial forum in Shanghai.

“The financial support during the epidemic response period is (being) phased, we should pay attention to the hangover of the policy,” Yi said.

“We should consider the timely withdrawal of policy tools in advance.”

The People’s Bank of China had guided financing costs lower this year, Yi said.

New loans are likely to hit nearly 20 trillion yuan ($2.83 trillion) this year, up from a record 16.81 trillion yuan in 2019, and total social financing could increase by more than 30 trillion yuan, the governor said.

The bank’s balance sheet remains stable around 36 trillion yuan, he added.

The PBOC has already rolled out a raft of easing steps since early February, including cuts in reserve requirements and lending rates and targeted lending support for virus-hit firms.

The economy has been recovering steadily after shrinking 6.8% in the first quarter, the first contraction on record.

Analysts expect the central bank to ease policy further to bolster economy.

Guo Shuqing, chairman of the banking and insurance regulator, told the same forum that China will not monetize fiscal deficits - a form of quantitative easing - and will not adopt negative interest rates.

It takes time for global supply chains to recover, and economies around the world have to re-think how to exit from massive easing measures that were rolled out in response to the coronavirus pandemic, said Guo.

Vice Premier Liu He said China’s monetary policy should be more flexible, and it should strengthen counter-cyclical adjustments, in prepared remarks delivered at the Shanghai forum.