BEIJING (Reuters) - China’s central bank governor on Thursday signaled that Beijing is comfortable with the current macroeconomic environment and plans to stick with its “prudent” monetary policy.
Zhou Xiaochuan also gave a suggested implementation timeline, for the first time, for introduction of deposit insurance and the full liberalization of deposit rates.
Both are seen as key reforms needed for the wider restructuring of China’s economy and a move away from miscalculated and mispriced investment.
The People’s Bank of China governor, at a press conference with other officials, said a long-awaited deposit insurance system would be rolled out in the first half of 2015 and caps on bank deposit rates would very likely be removed this year.
Zhou and his deputy governor Yi Gang reiterated that they were not overly concerned by capital outflows chasing higher returns on dollar assets, but said that regulators are keeping a close eye on inflation data and speculative activity.
“The ‘new normal’ condition is not special,” said Zhou, referring to a recent government catch phrase used to describe China’s new lower-growth environment.
“This does not necessarily require a new monetary policy formula,” he added
The PBOC has maintained its current monetary policy since 2011, under which it has raised or cut interest rates in line with shifts in the economy. But it has been stressing the need to fine-tune policy to support growth, which in 2014 was at its slowest pace in 24 years.
Thursday’s press conference came shortly after the central bank released upbeat economic data about credit creation, a source of concern for regulators trying to spur productive investment.
Chinese banks extended 1.02 trillion yuan ($162.9 billion) of new loans in February, well above market expectations, while growth in broad money supply quickened, taking some heat off the central bank as it seeks to boost flagging economic growth.
Economists polled by Reuters had expected new local-currency loans to fall to 750 billion yuan in February from 1.47 trillion yuan in January, which marked a lending surge not seen since mid-2009.
Total social financing, a broader measure of overall liquidity in the economy, fell to 1.35 trillion yuan in February, versus 2.05 trillion yuan in January.
Broad M2 money supply (M2) in February rose 12.5 percent from a year ago, the central bank said on Thursday, beating expectations of 11 percent and quickening from January’s 10.8 percent, which was the weakest since records started in 1998.
Outstanding loan growth was 14.3 percent in February, versus forecasts of 13.8 percent and the previous month’s 13.9 percent.
Jacqueline Rong, an economist at BNP Paribas in Beijing, said February new loans were the second highest for that month, after 2009, indicating the central bank is relaxing lending quotas.
For January and February combined, new lending rose to 2.49 trillion yuan, up from 1.96 trillion yuan a year earlier, while total financing was little changed at around 3.4 trillion yuan compared with 3.5 trillion yuan.
Other data released so far for early 2015 show China’s economy may already be at risk of missing the government’s newly-minted growth target of around 7 percent for the year, which itself would mark a quarter-century low.
Growth in investment, retail sales and factory output all missed forecasts in January and February combined and fell to multi-year lows, leaving investors with little doubt that the economy is still losing steam and in need of further support measures.
Exports picked up in the first two months but imports slid some 20 percent, pointing to persistent weakness in the economy, while deflationary pressures in the factory sector have intensified.
The central bank has cut interest rates twice since November, on top of a cut in bank reserve requirements in February, amid concerns about growing deflationary risks, and more such moves are expected. Economists believe the PBOC has embarked on a more aggressive easing campaign since the global financial crisis in a bid to avert the risk of a sharper slowdown.
Additional reporting by Judy Hua in BEIJING and Nate Taplin in SHANGHAI; Writing by Pete Sweeney; Editing by Richard Borsuk