China’s central bank said that it will keep its “prudent and neutral” monetary policy, “closely” monitor liquidity and expectations, and deepen reforms in the interest-rates and currency market.
The People’s Bank of China aims to create an “optimal” environment to help stabilize the economic growth, while facilitating deleveraging, curbing bubbles and preventing risks, according to a quarterly monetary policy implementation report released late Friday in Beijing. The document is mainly a review of monetary policy conducted in the third quarter.
The authorities are working on a delicate balancing act of stabilizing growth, stepping up efforts in curbing excessive financial leverage and deepening economic reforms. Separately Friday, the PBOC and other regulators published sweeping draft rules for asset-management products, the latest official step to curb risks in the financial system.
“Overall, the prudent and neutral monetary policy has achieved relatively positive results,” the PBOC said in the statement. “We shall strike a balance between keeping liquidity basically stable and reducing the leverage.”
The PBOC’s quarterly reports follow a tumble in Chinese debt in recent days amid rising inflation and concern that officials will intensify a deleveraging campaign.
PBOC adviser Sheng Songcheng said at a conference this week that credit data suggest authorities have made “obvious achievement” in the deleveraging process. PBOC research director Xu Zhong said at the event that after four decades of reform and development, most low-hanging fruit has been picked and China must “bite the hard bones” of harder reforms.
PBOC Governor Zhou Xiaochuan, who has made a series of blunt warnings in recent weeks about debt levels in the world’s second-largest economy, wrote in a lengthy article published on the central bank website this month that the financial system is becoming significantly more vulnerable due to high leverage. Latent risks are accumulating, including some that are “hidden, complex, sudden, contagious and hazardous,” Zhou wrote.
In late October, the central bank injected 63-day money into the financial system for the first time, reassuring lenders about year-end funding availability while also intensifying a deleveraging drive by increasing costs.
The maneuver aims to smooth the seasonal volatility of fiscal factors, including the large debt issuance by the central and local governments, the PBOC said Friday. The central bank will continue to use reverse repos with various maturities to maintain liquidity in banking system “basically stable,” it said.