World Economy

China CB Warns on Reserve Cut

China CB Warns on Reserve CutChina CB Warns on Reserve Cut

China’s central bank reiterated it would fine-tune policy in a pre-emptive and timely way, but added that cuts to bank reserve requirements could put downward pressure on the yuan and foreign reserves.

The People’s Bank of China will stick to its long-standing prudent stance and keep the yuan currency basically stable, the bank said in its second-quarter monetary policy implementation report, Reuters reported.

China’s economy grew faster than expected in the second quarter, easing worries of a hard landing. But concern about debt and a build-up of cash on company balance sheets has led to speculation that further monetary easing would be limited, especially as China gets less return for each unit of credit growth.

The focus in the last five months of the year is expected to be on structural reform and fiscal measures to boost growth. China will ensure adequate liquidity and will use multiple monetary policy tools, while ensuring credit grows at a reasonable rate, PBOC said.

The PBOC also repeated its stance that the yuan would be kept basically stable and China would continue with interest rate and exchange rate reform.

The yuan has fallen 2.26% against the dollar this year.

China’s statistics bureau has said that economic growth will be stable this year, and the central bank in early June maintained its 2016 growth forecast of 6.8%. The economy grew 6.7% in the first half.

China will report July economic data next week, with expectations for broadly stable growth.