In this undated file photo, pedestrians pass the People's Bank of China headquarters in Beijing. The central bank of China may have more room to maneuver towards stable economic growth in the second half of the year, as the United States is expected to slow down its monetary tightening, industry experts said on Thursday.
The experts said it remains possible for the People's Bank of China, the country's central bank to reduce interest rates and the reserve requirement ratio to reduce the proportion of funds banks must hold in reserve over the rest of the year as the US Federal Reserve tightens.
While Fed officials are prepared to move ahead with multiple 50 basis points interest rate hikes to tame inflation, they are attentive to the need for adjusting their policy based on information about the economic outlook, the minutes of their meeting in early May were released on Wednesday.
The Fed may become less aggressive in tightening rates later in the year, as US inflation and economic growth slows down, according to experts. This will alleviate the pressure on currency depreciation and capital outflows facing China and leave the country with more space for monetary easing.
The space for China to reduce interest rates and the reserve requirement ratio may expand as the Fed's tightening slows and the domestic COVID 19 surge gets better controlled, said Cheng Shi, chief economist at ICBC International.
On May 20, China reduced the over-five-year loan prime rate, a benchmark of mortgage rates and longer-term loans by 15 basis points to 4.45 percent. The reserve requirement ratio was lowered in April, which released about 530 billion yuan $78.76 billion into the market.
There is room for the over-five year loan prime rate to decline if existing measures can't bolster credit demand, said Cheng.
He said that the need for further reducing one-year interest rates and the reserve requirement ratio could increase in the second half, considering large-scale tax refunds and the possible issuance of special treasury bonds.
According to Maximilian Wieland, an economist at Vanguard Investment Strategy Group, said that monetary easing in China should have a less depreciating effect than it has had so far, as market expectations over an aggressive Fed tightening fade over the coming months.
The experts said that monetary and credit easing in China has grown because policymakers had pledged to shore up an economy that was badly hit by recent waves of COVID 19 cases.
READ MORE: PBOC to boost healthy development of financial market.
Premier Li Keqiang urged on Wednesday the implementation of policies to stabilize the economy because of the fact that China's economy is facing difficulties that are even greater than in 2020 in some respects.
The central bank pledges to establish a long-term mechanism to help struggling market players, to improve willingness and capability of financial institutions to serve small and micro businesses.
The central bank said that monetary instruments including RRR cuts should be fully leveraged to boost the credit expansion of smaller businesses, as well as improve risk tolerance and mitigation related to loans to small and micro businesses.