China’s Zhou Says PBOC Has Room to Act on Growth Slowdown

People's Bank of China Governor Zhou Xiaochuan
People's Bank of China Governor Zhou Xiaochuan, seen here, said at Boao Sunday, that the economy had slowed “a bit too sharply,” while adding that patience was needed to see the effect of steps already taken. Photographer: Tomohiro Ohsumi/Bloomberg

China’s central bank chief said that the nation’s growth rate has tumbled “a bit” too much and that policy makers have scope to respond, underscoring forecasts for further monetary easing in the world’s second-largest economy.

“China’s inflation is also declining, so we need to be vigilant to see if the disinflation trend will continue, and if deflation will happen or not,” People’s Bank of China Governor Zhou Xiaochuan, 67, said Sunday in remarks at the Boao Forum for Asia, an annual conference on the southern Chinese island of Hainan. “China can have room to act,” both with interest rates and “quantitative” measures, he said.

Zhou’s remarks follow signs that China slowed further in the first quarter, after recording its weakest expansion since 1990 last year. Underscoring the commitment to support growth, the central bank on Monday lowered the downpayment requirement for some second-home buyers.

“It’s part of China’s broad effort to arrest a slowdown,” said Zhao Xijun, a finance professor with Renmin University in Beijing. “It will help boost sentiment as the government is again encouraging people to buy property. At the same time, there’s a fundamental difference from the stimulus we saw in 2009 -- the government is trying to ease curbs to get the property market back to normal, not to instill another round of frenzied speculation.”

Downpayment Cut

The PBOC cut the minimum downpayment to 40 percent from 60 percent for people who haven’t paid off their existing mortgage but are buying a second home to improve their living conditions, the central bank said on its website.

Analysts surveyed by Bloomberg News also expect the PBOC will lower both benchmark lending rates and banks’ required reserve ratios, adding to cuts made in recent months.

Chinese stocks trading in Hong Kong posted the biggest gain this year, with China Citic Bank Corp. leading gains for lenders. The yuan rose the most in almost a week.

China’s leadership is trying to wean the economy off debt-fueled property investment and old-line polluting industries, shifting toward services and domestic-consumption led growth. While President Xi has repeatedly said his nation is comfortable with a “new normal” of less-rapid expansion, officials are also wary of the slowdown weakening too much.

Growth Slows

The economy expanded 6.28 percent in February from a year earlier, Bloomberg’s monthly growth tracker shows, and the government’s official factory reading due Wednesday likely worsened, according to economists surveyed by Bloomberg.

“A further deterioration in March would be another reason to expect a ratcheting up of policy support,” Bloomberg economists including Tom Orlik wrote in a report. Efforts to lower money market rates may include “an imminent move on the reserve requirement ratio,” they wrote.

Premier Li Keqiang this month set a growth target of about 7 percent for this year, while pledging action if it slows toward the lower limit of the range and cuts into jobs and income. Zhou said at Boao Sunday that the economy had slowed “a bit too sharply,” while adding that patience was needed to see the effect of steps already taken.

Even with a more moderate pace than in the past, Xi told Boao attendees Saturday that his nation “will continue to provide countries including Asian nations more markets, growth, investment and cooperation opportunities.”

Expanding Influence

China is building its influence even amid the slowdown, championing new lending institutions, including the Asian Infrastructure Investment Bank, which saw additional nations signing up in recent days. U.S. allies including the U.K., Australia and South Korea are among the supporters of the AIIB, after they set aside American opposition.

Zhou at Boao Sunday highlighted how China is working on reform of its currency, the yuan, which has been subject to limits on capital flows and restricted movements against counterparts. China will revamp foreign-exchange regulation “relatively radically” this year, the PBOC chief said. Earlier this month, he pressed the head of the International Monetary Fund to consider the yuan for inclusion as an official reserve currency -- by adding it to the fund’s special drawing rights unit.

In addressing the risk of deflation, Zhou’s concerns reflect those of many counterparts around the world. Japan saw its benchmark gauge of inflation stagnate in February, according to a report released on Friday. European monetary policy makers have stepped up easing to combat the danger of falling consumer prices, which can inflate the real burden of loans.

More Easing

“Further policy easing is on the way, there’s no doubt about that,” said Guan Qingyou, chief macro-economic researcher with Minsheng Securities Co. in Beijing. “The central bank seems to realize that it’s better to act sooner than later given consideration to China’s deepening slowdown and deflationary pressure.”

The major economy with perhaps the least concern on that score is the U.S., which has enjoyed a strengthening job market in recent months. As a consequence, the Federal Reserve has been preparing the ground for its first interest-rate increase in years, a shift that has seen the dollar climb since the middle of last year.

Zhou told an audience that included central bankers from Japan and Germany that by many nations easing policy, the dollar could become too high. Officials will need to be cautious about capital flows, he said.

The governor said that patience is needed to observe the impact of monetary measures. The PBOC announced its first interest-rate cut in two years in November and followed with another reduction announced Feb. 28. It also lowered banks’ reserve ratio requirements last month.

The room the country has to move on monetary policy “is not necessarily for quantitative easing,” Zhou said. There is scope “on both the price side and the quantitative side,” he said.

— With assistance by Xiaoqing Pi

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