China’s premier says can use rates, other policy steps to support economy

BEIJING: China can use reserve requirements and interest rates to support economic growth, Premier Li Keqiang said, promising broad policy steps to prevent a sharper deceleration as the world’s second-biggest economy expands at the slowest pace in nearly three decades.

Li’s comments suggest Beijing is ready to roll out more forceful stimulus measures to ease the strain on businesses and consumers.

China has so far promised billions of dollars in planned tax cuts and infrastructure spending, as economic momentum is expected to cool further due to softer domestic demand and a trade war with the United States.

China is targeting a GDP growth range of 6 to 6.5 per cent this year, down from 6.6 per cent in 2018 – the slowest pace in 28 years.

“Of course, we are faced with many uncertain factors this year. We have to prepare more and we have reserved policy room ( to address uncertainties),” Li told reporters at a news conference on Friday at the conclusion of the annual parliament meeting.

“Moreover, we can deploy quantity- based or price- based policy tools such as reserve requirements and interest rates. This is not monetary easing but to more effectively support the real economy.”

The support measures rolled out so far are taking time to kick in and most analysts believe activity may not convincingly stabilise until the middle of the year.

The central bank has cut banks’ reserve requirement ratios (RRR) five times since last year, with a two-stage RRR cut in January releasing a total of 1.5 trillion yuan (US$223.23 billion) into the financial system.

Further cuts in the RRR had been widely expected this year, after fresh data pointed to persistently soft demand in the Asian economic giant, raising fears of a sharper slowdown.

Sources told Reuters in February that the central bank is not yet ready to cut benchmark interest rates to spur the slowing economy, but is likely to cut market-based rates.

An across- the- board cut in borrowing costs could also risk another flareup in debt and speculative activity like that which followed in the wake of the 2008-9 global financial crisis. — Reuters