Stability a priority for China's bank

• China will prioritize stability in monetary policy in 2021, and any steps to exit stimulus measures will have a small impact on the economy, the Xinhua News Agency on Friday quoted central bank governor Yi Gang as saying.

The central bank will use various policy tools to keep liquidity reasonably ample and ensure that the growth of broad money supply and total social financing basically matches nominal economic growth, Yi was quoted as saying. China will provide more financial support to small firms, technological innovation and green development, Yi added.

“In 2021, monetary policy should prioritize stability to maintain ... sustainability,” Yi said.

The central bank had said on Wednesday it would make its monetary policy flexible, targeted and appropriate in 2021, focusing on supporting small firms.

The bank has rolled out a raft of measures, including cuts in interest rates and reserve ratios since early-2020 to support the virus-hit economy.

But it has shifted to a steadier stance in recent months and kept its benchmark lending rate, the loan prime rate, unchanged since May.

Policy sources have said that the central bank will scale back support for the economy in 2021 and cool credit growth but that fears of derailing a recovery from a pandemic-induced slump and debt defaults are likely to prevent it from tightening any time soon.

Yi said any steps to exit stimulus measures will have a small impact on the economy this year because the central bank had refrained from adopting zero or negative interest rates.

While the ratio of China's overall debt level increased last year as the pandemic dealt a blow to the economy, the debt ratio is likely to return to a basically stable track this year.

The rise in the ratio of China's total debt to gross domestic product has started to slow since the third quarter of last year, Yi added without elaborating.

The Chinese Academy of Social Sciences, a government think tank, sees the macro leverage ratio jumping by about 30 percentage points in 2020 to over 270 per cent.

Yi said China will continue to let the market play a decisive role in setting the yuan's exchange rate in 2021, but it will keep the yuan basically stable.

The yuan was on course for its best week in two months, despite fresh measures rolled out by the central bank to ease capital inflows and slow the currency's rally.

The currency has gained nearly 1 per cent against the greenback in the first week of the new year, building on a near 7 per cent rise in 2020.