China underestimated global slowdown, key to rates: central bank adviser

Thu Sep 27, 2012 6:49am EDT
 
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By Kevin Yao

BEIJING (Reuters) - China severely underestimated this year's global economic slowdown and further cuts to Chinese interest rates or bank reserve requirements hinge on any new deterioration in the external environment, a central bank adviser said on Thursday.

Chen Yulu, a professor at China's Renmin University and an academic adviser to the monetary policy committee of the People's Bank of China (PBOC), was speaking to reporters on the sidelines of a conference in the capital on global economic conditions and capital flows.

"We have indeed underestimated the severity of the external economic situation," Chen said, adding that the global economy could remain sluggish for an extended period.

Asked whether the PBOC would opt to boost the economy by further cutting interest rates or required reserve ratios (RRR) for banks to spur commercial lending, Chen said: "It will hinge on the degree of deterioration of the external situation."

The PBOC cut interest rates twice in June and July and lowered RRR three times since late 2011 freeing an estimated 1.2 trillion yuan ($190 billion) for new lending.

But it has held off on more aggressive easing measures since then, despite further signs of cooling demand at home and abroad. Instead, it has opted to pump short-term cash into money markets to ease credit strains, a move analysts say reflects Beijing's concerns about renewed property and inflation risks.

The central bank said on Tuesday that it will "fine tune" policy to cushion the economy against global risks while closely watching the possible impact from recent policy loosening in the United States and Europe.

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Employees work at a heavy equipment factory in Suzhou, Jiangsu province September 27, 2012. REUTER/Aly Song