Economic 'new normal' does not indicate problems: PBOC chief

Zhou Xiaochuan, the governor of the People's Bank of China, speaks at a press conference on financial reform during the third session of the 12th National People's Congress in Beijing on Thursday. Photo: AFP

China has not changed its stance on its prudent monetary policy, despite having used various tools to adjust liquidity in the market, the central bank chief told reporters on Thursday.

At a news conference during the ongoing annual legislative session, Zhou Xiaochuan, governor of the People's Bank of China (PBC), also said China is moving toward launching the long-anticipated deposit insurance scheme and fully liberalizing the interest rates mechanism this year.

Reiterating that the country's prudent monetary policy has not changed, Zhou said "a 'new normal' [in the economy] doesn't signify a special, problematic situation. Therefore it's unnecessary to propose a shift in monetary policy."

Adding to some targeted easing measures, the PBC has announced two cuts in benchmark interest rates and a broad-based reduction in the lender's reserve requirement since November 2014.

However, the broad M2 money supply (M2), a gauge of the tightness or looseness of monetary policy, remains moderate following the adoption of a variety of monetary tools, a sign that the monetary policy is still within the prudent and neutral range, Zhou said, who is also a member of the National Committee of Chinese People's Political Consultative Conference (CPPCC), China's top political advisory body.

In China, M2 refers to cash in circulation and all deposits.

Addressing concerns over deflationary pressures, deputy central bank governor Yi Gang, who is also a CPPCC member, said at the same news conference that the producer price index in particular, which has stayed in negative territory for the 36th consecutive month in February, reflects a worldwide pressure in the wake of the recent decline in oil prices, major commodities and iron ore.

The consumer price index, the main gauge of inflation, rose 1.4 percent year-on-year in February, up from 0.8 percent in January, official data showed on Tuesday.

The central bank will keep a close watch on the price levels, while making liquidity adjustments within the prudent monetary policy, Yi noted.

"By maintaining a prudent monetary policy, the government has put a greater focus on implementing the monetary policy in a flexible and discretionary fashion," Jia Kang, the former head of the Research Institute for Fiscal Science under the Ministry of Finance and a CPPCC member, told the Global Times on Thursday.

But the possibility of further easing measures such as additional cuts in the reserve requirement cannot be ruled out, Jia added.

In his government work report delivered on March 5 at the opening of the legislative session, Premier Li Keqiang set the M2 growth target at around 12 percent in 2015, adding that the actual supply could be slightly higher depending on the needs of the economy.

The premier's statement that pointed to a possible higher M2 growth already hinted at flexibility in the context of downward pressure on the economy, Lu Zhengwei, the chief economist at Industrial Bank Company in Shanghai, told the Global Times on Thursday.

Lu believes the current monetary policy is on course to lay the groundwork for meeting this year's official growth target.  

The February credit growth figures released by the PBC on Tuesday have shown that the new yuan loans came in stronger-than-expected at 1.02 trillion yuan ($162.79 billion), while total social financing added 1.35 trillion during the month. 

The increased easing measures thus far will take time to come to fruition, but it still "may lead to an activity rebound in the second and third quarters to help move overall growth closer to this year's 7 percent target," UBS Securities economists led by Wang Tao, said in a research note e-mailed to the Global Times on Thursday, commenting on the credit growth data.

Also at Thursday's news conference, Zhou said the introduction of the deposit insurance system is an important step in advancing the financial reforms and "I personally feel it will be launched in the first half of the year."

On further liberalizing deposit rates, Zhou said "if there's a chance this year, it is likely that the ceiling on deposit interest rates would be removed. There's a very strong possibility."


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