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‘China may not use room it has for monetary easing’

WASHINGTON — China’s central bank governor Zhou Xiaochuan said Beijing has scope compared with other nations to ease its monetary policies, although it would not necessarily take advantage of it.

WASHINGTON — China’s central bank governor Zhou Xiaochuan said Beijing has scope compared with other nations to ease its monetary policies, although it would not necessarily take advantage of it.

“We have room in the reserve ratio and our interest rates are not zero yet,” Mr Zhou, 67, said in an interview on Saturday in Washington, where he was attending the International Monetary Fund’s (IMF) meetings. “There is definitely room. But we need to adjust carefully. It doesn’t mean we will have to utilise it or fully utilise the room.”

Banks including Macquarie Group and HSBC Holdings flagged the need for further stimulus after China’s economy expanded last quarter at its slowest pace since 2009 and industrial-production gains last month were the slowest since November 2008. An economy-wide inflation indicator turned negative last quarter for the first time since 2009, suggesting room for easing.

Premier Li Keqiang last month said policymakers would step in to support the economy if jobs and wages are hurt by the slowdown, while Mr Zhou previously said China needs to be vigilant about deflation risks and policymakers have “room to act”.

The People’s Bank of China (PBOC) made its first interest-rate cut in two years last November and followed with another reduction announced in February, with the one-year lending rate now at 5.35 per cent and one-year deposit rate at 2.5 per cent. It also lowered banks’ reserve-ratio requirements in February.

In addition, the country is battling a property slump, excess industrial capacity, government debt and capital outflows. The nation is among at least 30 countries that have loosened monetary policy this year as lower commodity prices give room for stimulus.

Gross domestic product rose 7 per cent in the three months through March from a year earlier, while industrial production last month grew by 5.6 per cent, after a 6.8 per cent rise in the first two months of the year.

In a statement at the meetings in Washington, Mr Zhou said while China’s economic expansion is slowing, it is still within a “reasonable range” and employment growth remains stable.

He reiterated that Beijing would pursue prudent monetary policy and said it would adjust “adaptively” according to the economy and inflation, based on the statement posted on the PBOC’s website.

A hurdle that may curb the extent of any monetary stimulus is China’s surging stock market, which took off after the central bank cut interest rates last November. Another may be reticence to reignite debt risks and a repeat of the 2009 stimulus binge.

Mr Zhou and the Chinese government have been pressing the IMF to include the yuan in its Special Drawing Rights basket of currencies regarded as global reserve currencies. IMF managing director Christine Lagarde has said “we welcome and share this objective”.

Mr Zhou, in the interview, declined to speculate when the yuan would be added to the basket. The IMF this week indicated that it might be abandoning its long-held view that the Chinese exchange rate is undervalued. “The market should be the judge of the yuan’s value rather than us,” said Mr Zhou. BLOOMBERG

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