Expectations for Near-Term Easing Cool After China Central Bank Comments

China will not resort to flood-like stimulus, Pan Gongsheng, vice governor at the People’s Bank of China (PBOC) told a news conference on Tuesday.

The space for monetary policy is still relatively big, said Pan, in comments that some analysts said showed the Chinese central bank could conduct policy in a normal range.

Signs that China’s economy is losing steam and small firms are struggling had stoked market expectations of policy support sooner rather than later. The PBOC last delivered a cut to banks’ reserve requirement ratio (RRR) in mid-July.

The Chinese yuan rose against the dollar on Wednesday after the PBOC official’s comments cooled market expectations for imminent policy easing.

“As a result, the PBOC is unlikely to adopt strong stimulus to boost the economy, and aggressive monetary policy easing will likely be shunned,” Citi wrote in a note on Wednesday.

Speaking at the same event, Sun Guofeng, head of the monetary policy department at the PBOC, said there is no big shortfall of base money, and liquidity supply and demand will remain basically balanced in coming months.

“Based on the tone and messages from (the) press conference, we lower the probability of a targeted RRR cut in September-October to 50% from 70% previously,” Nomura wrote in a research note, adding that the PBOC could opt for more targeted tools to support groups such as SMEs instead.

Customs data released on Tuesday showed Chinese exports unexpectedly grew at a faster pace in August thanks to solid global demand, helping to take some of the pressure off the world’s No.2 economy.

At a meeting at the end of July, the ruling Communist Party’s top decision-making body said China would stick with its current economic policies in the second half of the year.

PBOC’s Pan reiterated that stance, saying the central bank should “do a good job in its design of cross-cyclical policies and comprehensively consider the connection of monetary policy this year and the next.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gabriel Crossley, Ryan Woo and Beijing Newsroom; Editing by Andrew Heavens, Ana Nicolaci da Costa & Simon Cameron-Moore)