China’s central bank says inflation risks controllable

Bloomberg

China’s inflation risks are “controllable” and while rising costs may hurt small businesses, authorities have increased support for those types of firms, central bank
officials said.
Sun Guofeng, head of the monetary policy department, said at the briefing in Beijing on Friday that producer price inflation will remain elevated in the short term before falling toward the end of the year, though imported inflation and the impact of the global commodity boom is controllable.
People’s Bank of China officials reiterated an earlier policy stance that monetary policy will be flexible, targeted, reasonable and appropriate. The central bank has maintained a largely neutral monetary policy this year, guiding credit growth to slow down while keeping liquidity stable. Governor Yi Gang recently vowed to keep a “normal” monetary policy for as long as possible and avoid large-scale stimulus.
While consumer inflation is expected to pick up, it will remain within reasonable range, Sun said. Small businesses in downstream industries may be affected by the increase in costs, and the PBOC has increased support to those firms, he said.
PBOC has made arrangements to reduce the impact of policy changes in advanced economies on China’s economy.
The macro leverage, or overall debt ratio in the economy, reached 274.9% by the end of the first half of the year and likely remained stable in the third quarter.
Many economists expect the central bank to cut banks’ reserve requirement ratio by the end of the year to boost liquidity and replace maturing policy loans. Interest rates are expected to stay unchanged though.
The PBOC officials said authorities have asked banks to keep loans to the real estate industry stable and orderly to limit contagion from the debt crisis of developer China Evergrande Group. Evergrande’s risks are controllable and unlikely to spread, they said.