Chinese officials have been talking about gradually winding back stimulus since the summer, alongside evidence of a rebounding economy
fueled by strong export growth and a coronavirus outbreak that’s now under control domestically. The People’s Bank of China
remains on course to taper its emergency support even as a string of defaults by government-linked companies sent tremors through the credit markets recently.
In a separate quarterly report released by the PBOC Thursday, it pledged to keep monetary policy “normal” for as long as possible. Other key highlights from the report:
The macro leverage ratio is expected to stabilize as economic growth gradually returns to its potential rate of growth
Pressure from non-performing loans will rise in the future
There is no basis for long-term inflation or deflation
It reiterated that prudent monetary policy should be more flexible, appropriate, and targeted
The mechanism for preventing and dealing with bond default risks will be improved
Yuan exchange rates will be kept flexible and authorities will let the market play a decisive role in the formation of the rate
Liquidity will be kept reasonable and ample to prevent the market from running short or being flooded with money
Government bond yields have risen sharply since the middle of the year amid signs of an economic recovery and expectations of a withdrawal of monetary stimulus. Traders have also been pricing in the possibility that banks will boost the benchmark interest rate for loans, known as the loan prime rate.
The PBOC has taken a measured approach to monetary support this year, lowering interest rates, injecting liquidity and giving businesses loan repayment holidays, but has refrained from the massive stimulus seen elsewhere.
Governor Yi Gang told market participants as early as June to start thinking about an exit from the looser financial policies. Several other officials have followed, including Liu Guoqiang, a vice governor at the central bank, who said earlier this month that an exit is likely “sooner or later.” Former Finance Minister Lou Jiwei said almost two weeks ago that it was time to study an orderly exit of loose monetary policies.