China can use reserve requirements and interest rates to support economic growth, Premier Li Keqiang said on Friday, promising broad policy steps to prevent a sharper slowdown for the world’s second-biggest economy, Trend reports referring to Reuters.
Li’s comments suggest Beijing is ready to roll out more forceful stimulus measures to ease strains on businesses and consumers.
China has so far promised billions of dollars in tax cuts and infrastructure spending, as economic momentum is expected to cool further due to softer domestic demand and the trade war with the United States.
Shares in China climbed on Friday after the government reiterated its commitment to boosting growth.
The yuan recovered from a three-week low against the dollar after Li’s comments.
China is targeting economic growth of 6.0-6.5 percent this year, down from 6.6 percent in 2018 - the slowest pace in 28 years.
“Of course, we are faced with many uncertain factors this year. We have to prepare more and we have reserved policy room (to address uncertainties),” Li told a news conference after the annual parliament meeting ended.
“Moreover, we can deploy quantity-based or price-based policy tools such as reserve requirements and interest rates. This is not monetary easing but to more effectively support the real economy.”
Li’s comments “reconfirm a consistent pro-growth stance, with clarity on fiscal easing and an earlier-than-expected effective date for tax cuts,” Morgan Stanley said in a note, adding that it expects improved growth from the second quarter.
The support measures rolled out so far are taking time to kick in and most analysts believe activity may not convincingly stabilize until the middle of the year.
The central bank has cut banks’ reserve requirement ratios (RRR) five times over the past year, with a two-stage RRR cut in January releasing a total of 1.5 trillion yuan ($223.23 billion) into the financial system.
Further cuts in RRR had been widely expected this year, after fresh data pointed to persistently soft demand in the Asian economic giant, raising fears of a sharper slowdown.
Sources told Reuters in February that the central bank is not yet ready to cut benchmark interest rates to spur the slowing economy, but is likely to cut market-based rates.
An across-the-board cut in borrowing costs could also risk another flare-up in debt and speculative activity like that in the wake of the 2008-9 global financial crisis.