China will not change prudent monetary policy: Premier Li

BEIJING (Reuters) - China has not and will not change its prudent monetary policy and will not resort to “flood-like” stimulus, Premier Li Keqiang said on Wednesday.

Chinese Premier Li Keqiang meets with Cambodian Prime Minister Hun Sen at the Great Hall of the People in Beijing, China, January 22, 2019. Ng Han Guan/Pool via REUTERS

Market speculation is growing over whether authorities will take more aggressive policy steps after recent weak data.

“I reiterate that the prudent monetary policy has not changed and will not change. We are determined not to engage in ‘flood-like’ stimulus,” Li said at a cabinet meeting, according to a statement on the government’s website.

Later on Wednesday, a central bank official reiterated Li’s comments on prudent monetary policy when interviewed by the Financial News, which is run by the central bank.

The official added that the central bank will prevent risks from overly tight monetary conditions, as well as to promote reasonable growth in credit and social financing.

China, the world’s second largest economy, has been trying to reduce risks of a slowdown, especially with its trade dispute with the United States.

The government has been rolling out measures, such as cutting banks’ reserve requirement ratio (RRR) to ensure that there is ample liquidity in the financial system.

China slashed RRR by 100 basis points in January - its fifth cut in the past year, with further reductions widely expected by the market.

China’s banks doled out a record 3.23 trillion yuan ($480.43 billion) in new loans in January while several other key credit gauges also picked up modestly that month in response to recent policy easing steps.

Rising bill financing and short-term loans could lead to “arbitrage” activities and create potential risks, he added.

Financial institutions should offer more credit, especially medium- and long-term loans to small firms, he said.

Li also said the government needed to deepen reform to resolve long-term problems in the economy.

Reporting by Kevin Yao and Beijing Monitoring Desk; Additional reporting by Lee Chyenyee in Singapore and Twinnie Siu in Hong Kong; Editing by Kim Coghill, Robert Birsel and Raissa Kasolowsky