China's central bank adviser: no strong stimulus needed as long as growth within range

By Reuters

Sep 18, 2014 02:19 AM EDT

China does not need strong policy stimulus as long as economic growth hovers within the government's targeted range, a policy adviser to the People's Bank of China said on Thursday, an indication Beijing will continue with targeted steps to support growth.

The remarks by Chen Yulu, a member of the central bank's monetary policy committee, came a day after a reported liquidity injection into China's major banks by the PBOC heightened speculation that Beijing was stepping up efforts to support a shaky economy. Money market rates dropped on Thursday, as traders reported more liquidity in the financial system.

"Currently, the focus of monetary policy is appropriate, we must keep our chin up and don't resort to strong stimulus as long as economic operations do not slip out of the targeted range," Chen told the official Financial News, which is published by the central bank.

Chen, however, said the PBOC should continue to offer 'mini-stimulus' to keep the economy on an even keel.

"The downward pressure (on the economy) cannot be ignored in the fourth quarter, so monetary policy mini-stimulus should continue. But, on the other hand, we should prevent such mini-stimulus from turning into strong stimulus," he said.

Some analysts believe annual economic growth may be sliding towards 7 percent in the third quarter, putting the government's full-year target of around 7.5 percent in jeopardy unless it takes more aggressive action.

Traders have been speculating of more policy support from Beijing as the world's second-largest economy has struggled to rebound from a weak start to the year, despite recent stimulus steps.

Data at the start of the week showed factory output grew at its weakest pace in nearly six years in August while weaker readings in investment, retail sales and imports suggested slack economic momentum.

China's central bank is injecting a combined 500 billion yuan ($81.35 billion) of liquidity into the country's top banks, according to media reports, a sign that authorities are stepping up efforts to shore up a faltering economy. But the PBOC has not confirmed these reports.

Ma Jun, the chief economist at the central bank's research bureau, also cautioned against strong policy stimulus, saying that modestly slower economic growth is favorable for reforms.

"Excessive stimulus is not favorable for structural adjustments," Ma wrote in an article in the same paper.

"In the foreseeable future, the general orientation of monetary policy should stay prudent."

China's leaders have repeatedly said they would use a period of anticipated slower growth to carry out structural shifts, including efforts to wean the economy off dependence on external demand and investment spending.

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