No Flood-like Monetary Stimulus in 2019, Further Reserve Cuts Likely: PBOC Adviser

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A leading adviser to the Chinese central bank says that it will refrain from “flood-like” monetary policy stimulus in 2019 due to concerns over asset bubbles, despite the anticipation of further downward pressure on the economy.

Sheng Songcheng, adviser to the People’s Bank of China (PBOC), said to 21st Century Business Herald on Tuesdaythat monetary policy will remain “prudent” and won’t turn into a “flood” in 2019.

“Otherwise, funds can be expected to flow into the property sector again,” said Sheng.

Sheng said that China would instead adopt more active fiscal policy next year to deal with anticipated downward pressure on the economy, and that the budget deficit ratio of the government is likely to rise to 3% from 2.6% in 2018.

He also pointed to room for further cuts to the reserve ratios of Chinese banks, following the implementation of four such cuts in 2018.

Sheng said across-the-board cuts to interest rates would be ill-advised, however, and that China can be expected to keep the yuan above the seven-per-dollar threshold due to the greater cost of stabilising the exchange rate in the case of further weakening.

Just after the US Federal Reserves latest rate hike PBOC launched targeted medium-term lending facilities, as another means of expanding liquidity with a focus on expanded lending to small and micro enterprise and private enterprise.

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