THE government will not resort to “flood-like” stimulus in monetary policy next year, although it will consider more cuts as needed to reserves held at commercial banks, a newspaper quoted a central bank adviser as saying yesterday.

The Chinese economy will face downward pressure in 2019, while the pace of growth will gradually stabilize, The 21st Century Business Herald quoted Sheng Songcheng, an adviser to the People’s Bank of China, as saying.

“Monetary policy will remain prudent and won’t be a ‘flood.’ Otherwise, funds will likely flow into the property sector again,” Sheng was quoted as saying.

There remains room for further cuts in banks’ reserve requirement ratios (RRRs), and Sheng does not recommend broad-based reductions in interest rates, it said.

China will bolster support next year for its economy, the world’s second-largest, by cutting taxes and keeping liquidity ample, Xinhua said after the Central Economic Work Conference.

Sheng said China would embrace a proactive fiscal policy in 2019, with the government’s budget deficit ratio likely to rise to 3 percent from this year’s 2.6 percent.

On exchange rates, the central bank adviser said China should defend the yuan at the key 7-per-U.S. dollar level.

“The key threshold of 7 per U.S. dollar is very important. If the yuan weakens past that crucial point, the cost of stabilizing the exchange rate will be greater,” Sheng was quoted as saying.

The central bank has so far refrained from cutting benchmark interest rates, which would undermine its efforts to rein in high indebtedness and pressure the yuan currency.

The central bank instead last week rolled out a new targeted medium-term lending facility to supply the economy with credit.

On Monday, the State Council, or cabinet, also said after a regular meeting that China would improve policies on targeted reserve ratio cuts while implementing more tax reductions.

In a commentary yesterday, the China Securities Journal wrote that the central bank could lower reserve ratios for banks three times next year to spur lending.

Premier Li Keqiang said last month that the country will not resort to strong monetary stimulus, but instead it will take targeted policy steps to support private companies and smaller businesses.(SD-Agencies)