BEIJING (Reuters) – China will strengthen economic policy and continue efforts to cut interest rates on loans, central bank governor Yi Gang said, raising expectations for further support measures to revive a ravaged economy by the coronavirus pandemic.
Yi, in an interview released by the central bank on Tuesday, said China’s economic fundamentals were unchanged despite many uncertainties and reiterated that its current stance on monetary policy will be more flexible.
The People’s Bank of China will use various monetary policy tools to maintain sufficient liquidity and keep the annual growth rate of M2 money supply and social finance significantly higher than last year, Yi said.
Since the virus outbreak, the central bank’s policy measures, including reductions in bank reserve requirements, loans and rediscount facilities, have amounted to 5.9 trillion yuan ($ 827.63 billion) , did he declare.
The central bank said on Monday it had reduced the reserve requirement ratio (RRR) for big banks to 11%.
China’s economy shrank 6.8% in the first quarter, the first quarterly contraction in decades, as the coronavirus took a heavy toll, and analysts say it could be months before the broader activity does not return to pre-crisis levels.
Chinese banks could face an increase in the non-performance rate and pressure to liquidate bad loans, Yi said.
China will help banks, especially small and medium-sized banks, to replenish their capital through multiple channels and improve their ability to handle bad debts, he added.
The impact on the global economy of a prolonged pandemic and turmoil in overseas financial markets could affect China’s balance of payments and cross-border capital flows, Yi said.
The central bank will deepen reform of the prime lending rate (LPR), the benchmark lending rate, to help reduce real lending rates, and gradually unify benchmark deposits, lending rates and market interest rates, did he declare.
(This story has been passed on to correct the governor’s last name in the third paragraph)
Reporting by Colin Qian, Se Young Lee and Kevin Yao; Editing by Kim Coghill and Shri Navaratnam