China’s PBOC governor says there’s room to cut banks’ RRR

China’s central bank governor said there was room to further cut banks’ reserve requirements, and pledged to utilize monetary policy to prop up consumer prices.

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BEIJING — The heads of China’s central bank and economic planning agency signaled that authorities would be willing to take further steps to support growth, but did not announce any large-scale stimulus plans.

Pan Gongsheng, governor of the People’s Bank of China, told reporters Wednesday there was room to further cut banks’ reserve requirements — the amount of cash they need to have on hand. He also pledged to utilize monetary policy to “mildly” prop up consumer prices, according to CNBC’s translation of his Mandarin-language remarks.

Pan was speaking at a press conference with other key leaders of the country’s economy and financial sector on the sidelines of this year’s annual parliamentary meetings.

The leaders defended China’s growth target of around 5% for the year, while adhering to a 3% fiscal deficit.

In an annual government work report released on Tuesday, Premier Li Qiang promised to transform the world’s second-largest economy, which is facing a slew of economic challenges including a real estate slump, high levels of local government debt, deflation and weak consumer demand.

Yet, the work report fell short of many analysts’ expectations for further stimulus and raised questions about how China would be able to achieve another year of growth that’s around 5%.

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National GDP rose by 5.2% in 2023, up from a low base in 2022 as China emerged from its stringent “zero Covid” measures. China’s consumer prices saw their biggest drop in January since 2009, while producer prices declined for a 16th month — underscoring the depth of the challenge that Beijing faces in reflating the world’s second-largest economy.

Still, Pan said China has ample monetary policy tools at its disposal, and pledged to push for lower financing costs in the months ahead.

The PBOC last cut reserve ratio requirements for banks by 50 basis points from Feb. 5, which provided 1 trillion yuan ($139.8 billion) in long-term capital. It was a much larger cut than analysts expected.

Boosting growth

This year, China will “continue to strengthen macroeconomic policies,” said Zheng Shanjie, chairman of the National Development and Reform Commission, the country’s economic planning agency.

He noted how this would involve coordination of fiscal, monetary, employment, industrial and regional policies, as China continues to step up macro economic policy adjustment.

“Of course, we clearly see that in the process of achieving the expected targets, there are still many difficulties and problems,” Zheng said, according to CNBC’s translation of his Mandarin-language remarks.

Wu Qing, Chairman of the China Securities Regulatory Commission, answers a question at a press conference during the second session of the 14th National People's Congress (NPC) in Beijing on March 6, 2024. (Photo by WANG Zhao / AFP) (Photo by WANG ZHAO/AFP via Getty Images)

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