China's central bank will maintain a stable monetary policy for the rest of the year, suggesting gradually eased inflationary pressure and contained default risk among property developers, senior officials said on Oct 15.
Record-high production prices in September driven by surging raw material prices caught the attention of central bank officials. They projected pressure might be eased by the end of this year or next year, and that annual consumer inflation will be kept within the targeted range of around 3 percent.
In dealing with the situation, the People's Bank of China, the central bank, will utilize various policy tools to maintain liquidity at an ample and stable level in the fourth quarter, PBOC monetary policy department head Sun Guofeng said at a news conference.
Although some short-term factors, including government bond issuances and tax payments, may affect market liquidity, the PBOC will adopt a medium-term lending facility and open market operations at an appropriate time to inject funds, satisfy liquidity needs of financial institutions and reduce market fluctuations, Sun said.
Sun pledged to guarantee stable credit growth and continually reduce financing costs for small business.
As the US central bank may start to reduce asset purchases later this year, the PBOC has already taken precautionary measures to limit spillover effects of tightened financial conditions due to some advanced economies' policy shifts.
On Oct 13, the United States Federal Reserve unveiled the minutes of the September meeting of the Federal Open Market Committee, indicating that it may begin to "taper" asset purchase plans as early as next month, and more Fed officials predicted an interest rate rise in 2022.
Default risks among some large Chinese private property developers, such as Evergrande Group, also raised concerns among monetary authorities. At present, some departments and local governments are working on risk management and urging Evergrande to accelerate the process of asset disposal and resume project construction in order to safeguard the interests of homebuyers, according to a PBOC official.
The financial sector will provide support for the resumption of Evergrande's project construction, said Zou Lan, head of the central bank's financial market department, who called the problem of Evergrande "an individual phenomenon" in China's real estate sector.
Market expectations on land and housing prices remain stable and most property developers have healthy financial conditions, Zou said.
As financial liability accounts for less than one-third of Evergrande's total debt and the group's creditors are quite diversified, the risk exposure for a single financial institution is not large, with the overall risk to the financial sector being under control, Zou added.
The PBOC and the China Banking and Insurance Regulatory Commission held a meeting in September that offered guidance to major banks on how to appropriately launch macro prudent management policy targeting real estate financing. The monetary authorities also urged the issuance of loans to developers and homebuyers at a stable pace.
The central bank also disclosed on Oct 15 that China's macro leverage ratio has remained steady so far this year, indicated by the 274.9 percent debt-to-GDP ratio by the second quarter, which was 4.5 percentage points lower than that at the end of 2020.
"According to the recent situation of economic recovery and debt growth, we project a stable macro leverage ratio in the third quarter," said Ruan Jianhong, head of the PBOC's statistics and analysis department.
