China's central bank pledges prudent monetary policy, stable yuan

China's central bank said on Thursday it will maintain a prudent monetary policy and keep the Chinese currency basically stable while offering "reasonably ample" liquidity to the market.  

A statement following a quarterly meeting of its monetary policy committee did not include the previously-used "neutral" to describe Chinese policy - an omission that could indicate a greater bias for easing at a time growth is slowing.

Also, the latest statement did not include a reference to China's deleveraging campaign. Three months ago, the People's Bank of China (PBOC) said it would control the intensity and pace of its structural deleveraging campaign.

"A prudent monetary policy should be more focused on being neither too tight nor too loose," the central bank said in the Thursday statement posted on its website.

"(China) will make monetary policy more forward-looking, flexible and targeted," it said.
 

Market analysts expect the PBOC to keep policy relatively loose to support China's slowing economy as it deals with trade frictions with the United States and pressure from a multi-year deleveraging campaign.

China's top leaders said in an annual economic meeting this month they will ratchet up support for the economy in 2019 by cutting taxes and keeping liquidity ample, as growth is expected to slow further next year. 

Targeted policy tool

This month, the PBOC rolled out a targeted policy tool to spur lending to small and private firms, in the latest step to support the economy amid the trade dispute with the US.

However, top policymakers have repeatedly said China won't resort to massive stimulus to shore up a slowing economy.

The government has cut the amount of cash banks have to set aside as reserves four times this year and on Monday, the state council flagged the chance of a targeted reserve requirement cut to support small and private firms.
 

On December 13, PBOC Governor Yi Gang said China's monetary conditions should be relatively loose to support its slowing economy but policy cannot be too loose as falls in domestic interest rates could hit the local currency.

Concerns about the yuan made their way back to the quarterly meeting's agenda. The PBOC reiterated that it would keep the yuan basically stable on a reasonable and balanced level.

This year, the yuan has weakened 5.6 per cent against the dollar, hurt by China's economic slowdown and the Sino-US trade row. In 2017, the currency gained about 6.8 per cent against the greenback.
 

The PBOC has outlined five monetary policy stances, ranging from "loose" to "tight". China adopted an "appropriately loose" monetary policy after the 2008 global crisis, before switching to "prudent" in late 2010. The wording was modified to "prudent and neutral" in late 2016 as China launched a deleveraging campaign.