THE central bank said yesterday it will make prudent monetary policy more flexible and step up counter-cyclical adjustments to support the real economy and fend off financial risks.

The People’s Bank of China (PBOC) said it the will continue to deepen lending rate reforms, improve the monetary policy transmission mechanism and guide lending rates lower.

In its first-quarter monetary policy implementation report published yesterday, the bank added that it would deepen foreign exchange market reform, maintain yuan flexibility and keep the yuan basically stable. It said it would maintain the basic stability of the exchange rate at a reasonable and balanced level.

The country will deepen the market-oriented reform of the yuan’s exchange rate mechanism, improve the managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies, and maintain the exchange rate flexibility, the PBOC said in the policy report.

The PBOC vowed to strengthen domestic and foreign currency policy coordination, and seek a balance between maintaining yuan exchange rate flexibility, improving macro-prudential policy on cross-border capital flows and enhancing global macroeconomic policy coordination.

It will continue to reform the country’s loan prime rate mechanism, which aims to better reflect market changes, improve the monetary policy transmission mechanism and guide lending rates lower.

While accelerating the development of the forex market, the PBOC vowed to help the country’s import and export companies better manage exchange rate risks, and support the use of yuan in cross-border trade and investment.

It will also support private firms in raising money via equity financing and bond sales.

The central bank said the country faces unprecedented economic challenges from the coronavirus pandemic and it will resort to “more powerful” policies to counter the hit to growth.

Policymakers will pay more attention to economic growth and jobs among multiple targets, the central bank said. It reiterated that prudent monetary policy will be more flexible and appropriate, and that it will maintain liquidity at a reasonably ample level.

The phrase “will avoid excess liquidity flooding the economy” was missing from the policy outlook section. It was in the previous report for the fourth quarter of 2019.

The policy outlook section deleted the usual description of what tools the bank plans to use to direct bank loans to the real economy. Previously it explicitly stated that it would use cuts to required reserve ratios and also to targeted RRR.

The PBOC will keep China as one of the few major economies that’s implementing “normal” monetary policy.

The bank will bring re-lending and re-discounting policies into full use and expand credit support to virus-hit sectors such as agriculture and trade.

It will maintain basically stable prices as China’s economic fundamentals suggest there’s no reason for long-term inflation or deflation.

Attention needed to the spillover effects of monetary easing in other major economies, it said, including on China’s balance of payments. (SD-Agencies)