PBOC Officials Downplay Concerns on Financial Risks and Yuan

(Bloomberg) -- Chinese central bank officials on Thursday downplayed emerging stress in the financial system following the state takeover of a regional bank, and said depreciation in the currency is under control.

Speaking at the annual 2019 Financial Street Forum in Beijing, People's Bank of China Governor Yi Gang said policy makers are “fully capable” of managing risks at small and medium-sized lenders, and the Chinese currency will “remain very stable” when asked if the yuan will sink below 7 per dollar.

The currency is down about 2.5% in May, headed for its worst drop since July and the biggest loss in Asia. It touched a five-month low of 6.9217 per dollar a week ago.

Another PBOC official said at the same event that financial risks are “shrinking,” the economy is resilient and macro economic leverage ratio is steady in spite of external uncertainties.

A slowing economy, rising trade tensions and growing market concerns on financial stability in the wake of the seizure of Baoshang Bank Co. are testing the “targeted” approach to policy easing that officials have preferred. The earliest indicators available for May suggest the world's second-largest economy is decelerating further. Data due Friday is forecast to show that the manufacturing sector has fallen back into contraction after two months of expansion.

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At Thursday's event, officials and policy advisers sought to assure investors their management of monetary policy is appropriate, and they'll continue to support growth. Yet they also implied such measures will most likely come via the “targeted” approach to stimulus, rather than in broad-based easing.

“Properly solving the credit support and direct financing for private and small and micro-sized companies is the most important task now,” Yi said in a speech, repeating an earlier pledge to make sure outstanding loans by big banks to small firms will grow by at least 30% this year and that the average financing cost for small companies will decline by 1 percentage point.

Sun Guofeng, director of the PBOC's monetary policy department, reiterated the bank has enough room to maneuver and tools to deal with the complexity in global situation. 

He said the PBOC will keep monetary policy prudent, while employing preemptive fine-tuning in line with economic growth and price changes. The bank will make good use of the monetary policy toolbox “with Chinese characteristics,” he said.

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China's economy “won't be very bad” this year and growth should be able to remain at least above 6.2%, Liu Shijin, an adviser to the central bank said on the sidelines of the forum.

China's foreign trade growth will stay low in the medium term, and while trade tensions with the U.S. and the global environment would affect China's exports, it's uncertain how large that would be, Liu said.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net;Heng Xie in Beijing at hxie34@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger, Sharon Chen

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With assistance from Bloomberg