November 9, 2018 / 4:47 PM / 7 months ago

UPDATE 1-China's to keep liquidity ample amid trade tensions

(Adds details, quotes)

BEIJING, Nov 9 (Reuters) - China’s central bank said on Friday it will keep liquidity ample under its prudent monetary policy, push ahead with interest rate reforms and encourage financial institutions to support small private firms as the world’s second-largest economy slows.

The government has in recent months taken steps to boost bank lending, cut taxes and quicken infrastructure spending to ward off a sharp slowdown in economic growth pressured by a bitter trade dispute with the United States.

"The prudent monetary policy will be kept neutral, neither too tight nor too loose," the People's Bank of China said in its third-quarter monetary policy implementation report posted on its website

The central bank said it will keep liquidity “reasonably ample” and make its policy more flexible and pre-emptive.

The People’s Bank of China (PBOC) has pumped out a net 2.3 trillion yuan ($330.68 billion) in liquidity this year by cutting banks’ reserve requirements four times, after offsetting maturing medium-term lending facility loans.

The weighted average lending rate for non-financial firms, a key indicator reflecting corporate funding costs, fell 0.03 percent point in the third quarter to 5.94 percent, the central bank said, suggesting increased liquidity injections have gained some traction in lowering borrowing costs.

The lending rate rose one basis point in the second quarter, following a rise of 22 basis points in the first quarter and a rise of 47 basis points in 2017.

The central bank said it would encourage banks to lend more to private firms, which account for 60 percent of China’s gross domestic product and 80 percent of urban jobs.

China’s cabinet has unveiled more financial support for private and small firms, which are vital for creating jobs, state radio said on Friday.

Of 29 companies defaulted on debt in the first nine months of 2018, 24 were private firms, involving 67.4 billion yuan, the central bank said.

The PBOC iterated that it will keep the yuan exchange rate basically stable at a reasonable and balanced level.

The yuan has lost just over six percent against the dollar so far this year. ($1 = 6.9553 Chinese yuan renminbi) (Reporting by Min Zhang, Kevin Yao in Beijing and Lee Chyen Yee in Singapore; Editing by Hugh Lawson, William Maclean)

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