Coronavirus: China to keep monetary policy ‘normal as long as possible’ despite economic impact of Covid-19

People’s Bank of China (PBOC) governor Yi Gang believes ‘the impact of the pandemic is temporary’, meaning the large economic stimulus of the past is unlikely

The coronavirus pandemic has already plunged the world’s second largest economy into its first contraction since quarterly records began in 1992

4-MIN READ4-MIN

China’s central bank has already loosened its monetary and credit stance to help combat the virus, including 1.8 trillion yuan (US$254 billion) to help virus-hit small businesses, trillions of yuan of liquidity injected to safeguard the financial markets, 7.1 trillion yuan of commercial bank loans in the first quarter, as well as multiple rate cuts to lower the cost of the real economy. Photo: AP

Published: 6:30pm, 27 Apr 2020Updated: 10:29pm, 27 Apr 2020

China’s central bank chief has warned against excessive economic stimulus to offset the unprecedented shocks from the coronavirus pandemic, citing the already high risk accumulated in the country’s financial system.

Instead, People’s Bank of China (PBOC) governor Yi Gang said “the normal monetary policy should be kept as long as possible”.

The coronavirus pandemic has already plunged the world’s second largest economy into its first contraction since quarterly records began in 1992, and the market is divided on how to shore up the economy, although there is caution over re-enacting the 4 trillion yuan (US$572 billion) stimulus package used a decade ago amid the global financial crisis.

“The impact of the pandemic is temporary. China’s economy has strong resilience and great potential, while the fundamentals for high-quality development won’t change,” Yi wrote in an article published in the academic publication, Economic Research, on Sunday.

If the economic stimulus is too big, it could bring the risk of inflation and a fast increase in the leverage ratio

Yi Gang

China’s central bank has already loosened its monetary and credit stance to help combat the virus, including 1.8 trillion yuan (US$254 billion) to help virus-hit small businesses, trillions of yuan of liquidity injected to safeguard the financial markets, 7.1 trillion yuan of commercial bank loans in the first quarter, as well as multiple rate cuts to lower the cost of the real economy.

Despite the risk that the debt-to-gross domestic product (GDP) ratio could rise further amid the rescue plans, Yi said the ratio, which was assessed by the National Institution of Finance and Development to have risen by 6.1 percentage points to 245.4 per cent last year, should be kept “as stable as possible”.

“A balance between economic stabilisation and risk prevention must be struck to make a leeway for long-term sustainability of the economy,” he wrote.