China to maintain ‘prudent’ monetary policy given positive impact of US trade deal, central bank says

After China signed its trade deal with the United States, the People’s Bank of China plans to also focus on improving finance structure and preventing financial risks

China’s central bank plans only ‘limited’ room for further cut in banks’ reserve requirement in 2020

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China’s central bank will maintain the level of total financing in the economy in line with economic development, Sun Guofeng, head of its monetary policy department, said. Photo: AFP

Published: 8:30pm, 16 Jan 2020Updated: 11:00pm, 16 Jan 2020

China’s central bank said on Thursday that the positive impact of the just-signed phase one trade deal with the United States will allow it to continue its “prudent” monetary policy this year, with only “limited” room for further cuts in banks’ reserve requirements.

“We were glad to see that the phase one trade deal was signed. It’s a good move and market expectations have seen a dramatic improvement. It is certainly a good thing,” said Zhou Xuedong, spokesman and director of the general office for the People’s Bank of China (PBOC).

The PBOC maintained a prudent monetary policy in 2019, under which is eased monetary policy modestly but did not engage in a massive addition of liquidity to support growth, as it tried to avoid a repeat of the adverse side of effects that occurred following its aggressive programme following the global financial crisis of 2008-2009.

China’s central bank will maintain the level of total financing in the economy in line with economic development, Sun Guofeng, head of its monetary policy department, said.

Still, financial analysts expect some further modest easing of financing conditions this year after the PBOC cut the bank’s required ratio – the amount of money they are required to hold at the central bank as reserves for their loan portfolio – by 50 basis points on New Year’s Day, which pumped 800 billion yuan (US$116 billion) into the banking system.

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