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China's central bank holds back economic stimulus

China's central bank policymakers on Tuesday dismissed expectations that they would take aggressive measures to boost economic growth.

"China's monetary policy remains within the normal range," said Pan Gongsheng, vice governor of the People's Bank of China and head of the State Monetary Administration.

He added that China would not go for large-scale stimulus like the flood. That's according to CNBC's translation of his remarks into Chinese, published on the central bank's website.

As of late Wednesday morning trading session, the Shanghai Composite was little changed after two consecutive days of gains of more than 1 per cent each.

The yield on China's 10-year government bonds was around 2.86%.

Nomura's chief economist for China, Ting Lu, said China's 10-year government bond yield rose to 2.87% from 2.85% on Tuesday night as markets interpreted additional comments from policymakers "as a signal that monetary policy easing will be reduced".

"Current conditions may not require as much liquidity as before to keep money market interest rates running steadily," said Sun Guofeng, the central bank's head of monetary policy, according to a CNBC translation.

Việt Nam Exness added that the central bank has "enough tools" to ensure market liquidity.

China's central bank uses a variety of measures, rather than a single primary rate, to implement monetary policy. The NBK lowered the reserve requirement ratio, the amount banks must hold in reserve, in July for the first time since April 2020. However, the benchmark interest rate, the main lending rate, has remained unchanged for 16 consecutive months .

Last week, the top executive, the Council of State, said the central bank would give banks an extra 300 billion yuan ($46.5 billion) to lend to small and medium-sized businesses.

"These [central bank] comments reduce the likelihood of imminent aggressive policy easing, given that the NBK does not seem to mind the current state of liquidity and interest rate levels," said Aidan Yao, senior economist for emerging Asia at AXA Investment Managers. , the report said.

"Overall, Sun's comments suggest that the NBK has not changed its cautious policy stance despite increasing economic headwinds," Yao said.

China's trade data for August came in much better than expected on Tuesday, with exports up 25.6 per cent and imports - a sign of domestic demand - up 33.1 per cent from a year earlier.

Other economic reports showed a slowdown in growth over the past few months, especially in late July and August as China battled its biggest coronavirus outbreak since the initial start of the pandemic in early 2020.

Retail sales and other data for August will be released on 15 September.

Growth will come under pressure in the third quarter, Xu Hongqai, deputy director of the Economic Policy Commission of the China Political Science Association, said in a telephone interview, according to CNBC's translation of his remarks into Mandarin.

He noted that exports cannot sustain growth in the long term and the economy must rely more on consumption and industrial investment, which are lagging behind.

But the central bankers' comments reflect overall stability in the economy, Xu said, and he expects government spending and other fiscal policies to play a bigger role in stimulating the economy in the next few months.

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