China’s central bank just hosed down expectations for further stimulus

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Don’t expect any substantial monetary policy stimulus to delivered in China any time soon.

The head of the PBOC’s research bureau, Lu Lei, said earlier today that room for further monetary is “relatively small”, with further reductions to interest rates or reserve requirement ratio (RRR) for banks “to fuel financial risk accumulation”, according to a report on Forexlive.

Lu also said that economic growth would “remain weak”, and that China would likely face “increasing deflationary pressure”.

He also suggested that he saw “increasing risks with corporate debt”, adding the nation’s “economic stability could face rising risks from financial turbulence”.

The PBOC last cut official benchmark interest rates, along with its bank RRR, on October 23 last year.

In recent weeks the central bank has been flooding China’s financial system with liquidity in the lead up to the Lunar New Year holiday beginning on February 8.

The bank injected a net 690 billion yuan last week through open-market operations, the largest weekly amount on record.

In tandem, the absence of further rate cuts and large injections of liquidity through the repo market, add credence to Lu’s remarks.