Apr 18 2024: China’s central bank is exercising caution regarding a potential surge in credit expansion as real credit demand shows signs of weakness, senior officials mentioned on Thursday.
Despite China’s stronger-than-anticipated economic growth in the first quarter, various indicators from March, such as property investments, retail sales, and industrial output, indicate a lingering fragility in domestic demand, which is slowing overall economic momentum.
While the People’s Bank of China (PBOC) is committed to providing policy support to the economy and stimulating price growth, it emphasizes the importance of maintaining credit quality over quantity.
Deputy Governor Zhu Hexin highlighted the effectiveness of previous monetary measures in facilitating economic recovery. However, he stressed the need for ongoing vigilance, effective policy implementation, and strategic use of reserve tools.
The PBOC cautioned against an overly aggressive approach to credit expansion, aiming to optimize credit quality and prevent an accumulation of idle funds. Zou Lan, head of the PBOC’s monetary policy department, emphasized the importance of preventing excessive borrowing for non-productive purposes.
While the central bank has implemented modest cuts in banks’ reserve requirements and interest rates, it remains cautious about lowering rates excessively, particularly for industries where real interest rates remain high.
Recent credit data in China indicated slower-than-expected growth in bank lending and overall credit, leading to expectations of additional stimulus measures to achieve the ambitious economic growth target set for 2024.
The PBOC is considering potential future policy tools involving treasury bonds, as indicated by experts. Despite challenges, China remains committed to maintaining stability in its foreign exchange market, with a focus on keeping the yuan exchange rate stable.
