China central bank to pause easing as economy recovers, wary of over-stimulus: sources

Reuters reports that China’s central bank does not see an immediate need to ease monetary policy further, but will keep conditions accommodative to support a recovery in the world’s second-largest economy, four policy sources told.

A stronger-than-expected rebound in activity in the second quarter has reduced the urgency for the People’s Bank of China (PBOC) to act, after policymakers announced unprecedented emergency measures early in the year to deal with the shock from the coronavirus crisis.

The PBOC also wants to avoid the side-effects caused by excessive stimulus, such as a surge in debt and risks of bubbles in the property market, said the sources, who are involved in internal policy discussions.

Moreover, policymakers are keen to save their ammunition amid uncertainty over how long it will take the global economy to recover and rising Sino-U.S. tensions, the sources said.

“We should keep monetary policy stable in the near term and leave some space for the future,” one of the sources said.

The PBOC did not immediately respond to Reuters’ request for comment.

The PBOC has rolled out a raft of steps since February, including cuts in lending rates, banks’ reserve requirement ratios (RRR) and targeted support for virus-hit companies such as cheap loans.

That marked an escalation in the current easing cycle that started in early 2018, although it has not slashed interest rates to near zero or embarked on quantitative easing as have many other major central banks.

The economy grew 3.2% in the second quarter, following a record 6.8% slump in the first three months of 2020 as the virus and strict measures to contain it paralyzed much of the country.

That was backed by record first-half bank lending of 12.09 trillion yuan ($1.73 trillion).

PBOC Governor Yi Gang has pledged to keep liquidity ample and boost new loans to nearly 20 trillion yuan this year, but he has also said China would need to consider withdrawing policy support at some point.