PBOC Emphasizes Monetary Control as Economic Outlook Brightens

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China's central bank shifted its tone on the economy, emphasizing that it will control excessive money supply amid signs of a recovery.

The People's Bank of China said it'll keep good control of the money supply "floodgate" and not "flood" the economy with excessive liquidity, according to a statement released late Monday. That wording had been dropped from the previous quarter's report, and its return signals increasing restraint in liquidity management as the economy improves.

China's “economy has shown healthy development and economic growth is resilient," with improvement in both market expectations and financial support for the economy, according to the statement from the first-quarter meeting of the monetary policy committee, which was held on April 12. The panel is chaired by PBOC Governor Yi Gang.

"The importance of risk prevention will likely rise and there may be small policy tweaks," Zhang Wenlang, analyst at Everbright Securities Cot Ltd. wrote in a research note, adding the PBOC's concern on domestic and global economy has lessened.

While repeating the need for continuous counter-cyclical measures, the bank said it'll "keep strategic focus," a phrase often seen when officials want to avoid large-scale stimulus. The bank also said it'll push forward market-oriented interest rates reform, keep credit growth in line with the pace of nominal gross domestic product and promote both inbound and outbound opening up of the financial sector.

Credit growth surged and exports rebounded in March, pointing to a firmer recovery in the economy after policy makers' strengthened stimulus in the second half of last year. Weaker global demand and uncertainties about the course of trade talks with the U.S. are likely holding back a more pronounced bottoming-out.

Monetary policy may be "shifting between a tightening and easing bias" going forward depending on economic conditions, Ming Ming, head of fixed income research at Citic Securities Co Ltd. wrote in a note.

The yield on 10-year sovereign notes surged last week amid speculation of tighter funding supply, in line with the positive data and also as the PBOC hasn't added liquidity in the open market. China is due to release first quarter gross domestic product data and other statistics for March on Wednesday.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editor responsible for this story: Jeffrey Black at jblack25@bloomberg.net

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With assistance from Bloomberg