China's monetary conditions should be relatively loose: central bank

BEIJING (Reuters) - China’s monetary conditions should be relatively loose to support its slowing economy but policy cannot be too loose as falls in domestic interest rates could hit the local currency, central bank chief Yi Gang said on Thursday.

FILE PHOTO: China's central bank governor Yi Gang attends the EU-China High-level Economic Dialogue at Diaoyutai State Guesthouse in Beijing, China, June 25, 2018. REUTERS/Jason Lee

China’s central bank must balance internal and external factors when it steers policy, as the U.S. Federal Reserve is expected to continue raising interest rates, Yi said at a forum at Tsinghua University in Beijing.

“Our cycle is different - the economic cycle is downward, so we need relatively loose monetary conditions,” he said.

But Yi cautioned that the yuan CNY=CFXS could suffer if China's policy loosening sharply lowered its interest rates.

Yi also said China would adjust monetary policy flexibly based on economic situations and has the experience, policy tools and ample forex reserves to keep its yuan currency stable.

China’s foreign exchange reserves, the world’s largest, rose by $9 billion in November to $3.062 trillion, marking the first gain in fourth months.

China’s current account surplus could fall to 0.1-0.2 percent of gross domestic product this year, Yi added.

China’s economic growth is getting closer to its potential rate, and its overcapacity woes have significantly eased, though there is increasing downward pressure on the economy, Yi said.

“Generally speaking, our development in recent years is nearing the potential growth rate with the output gap close to zero. Recently, we see that downward pressure on the economy is increasing,” Yi said.

Yi said China’s macro leverage ratio has been stabilizing around 250 percent since early last year.

Earlier on Thursday, China’s politburo, the top decision-making body of the Communist Party, said it would keep economic growth within a reasonable range next year, striving to support jobs, trade and investment while pushing reforms and curbing risks.

Reporting by Kevin Yao in Beijing; Editing by Jon Boyle