PBoC says it is making stabilising growth a higher priority

China’s central bank is making stabilising economic growth a top priority and will step up support for weak sectors, deputy governor Chen Yulu said. The People’s Bank of China (PBoC) has guided loan interest rates lower from an already low level, Chen said at a press briefing in Beijing on May 12. He reiterated the PBOC’s pledge to use new policy tools to cushion the economy.

“The PBOC will make stabilising growth a more prominent priority, strengthen cross-cyclical policy adjustment, and accelerate to implement policy measures already announced, especially to actively plan new policy tools,” said Chen.

The yuan extended losses, falling as much as 0.6% to a fresh low of 6.7630 to the US dollar, after Chen’s comments. The decline came even after the central bank set a stronger-than-expected fixing for an eighth straight session on May 12. The yield on 10-year government bonds was little changed at 2.82%.

“We think the market is taking the PBoC’s remark on guiding interest rates lower, to mean monetary easing will continue,” said Irene Cheung, senior foreign exchange strategist at Australia and New Zealand Banking Group (ANZ) in Singapore. “By allowing the yuan to weaken since late April, we think the central bank may have included the currency as an easing tool.”

The central bank has taken relatively modest easing action in recent months despite the sharp slump in activity as the government locked down cities like Shanghai to contain Covid-19 outbreaks. The PBoC made a smaller-than-expected cut in the reserve requirement ratio (RRR) for banks last month and refrained from cutting policy interest rates.

Even so, lending rates in the economy have come down. The weighted average interest rate for corporate loans was 4.4% in the first quarter — down 0.21 percentage point from the end of 2021 — the PBOC said in the monetary policy report published on May 9.

“The PBoC has stepped up the implementation of prudent monetary policy to help the macro economy stay stable,” Chen said. “First, the pre-emptive RRR cut has kept liquidity reasonably ample. Second, we have guided interest rates in the loan markets to decline from an already low level, to reduce market entities’ borrowing costs and stimulate financing demand.”