China growth hopes reduce urgency of more stimulus steps, policy advisers say

Mon Apr 18, 2016 4:37am EDT
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By Kevin Yao

BEIJING (Reuters) - China's leaders sound more confident that the world's second-largest economy has arrested a slide in growth to quarter-century lows, but their policy advisers caution it is too early to call an end to a cycle of easing that began in 2014.

Signs the economy is picking up give the central bank room to keep its policy powder dry for now so it has the ammunition later to cope with any possible shocks from domestic economic restructuring and expected U.S. rate rises, the policy insiders said.

"We still need to loosen policy and there is room for cutting interest rates, but the urgency for doing so has been reduced," said one policy adviser. The advisers requested anonymity because of the sensitivity of the matter.

Data on Friday showed that the annual pace of economic growth slowed to 6.7 percent in the first quarter, its weakest pace since early 2009. Growth for all of 2015 was the slowest in 25 years.

But stronger-than-anticipated activity indicators for March suggested the economy was gaining momentum as it headed into the second quarter, fueled partly by a surge of new debt. Industrial output, exports and retail sales were all surprisingly strong.

Rather than celebrating, China's main stock indexes ended slightly lower on Friday on worries that the data would prompt Beijing to ease up on providing extra policy support for the economy.

Since late 2014, the central bank has cut interest rates six times in its most aggressive easing campaign since the global financial crisis CNCBDR=ECI CNCBLR=ECI.

It has also cut bank reserves – the bank reserve requirement (RRR) - five times CNCBRR=ECI. Reducing reserves frees up cash that the banks can then use for lending.   Continued...

Labourers work at a construction site building a bridge in Beijing, China, April 14, 2016. REUTERS/Kim Kyung-Hoon