BEIJING (Reuters) – China is keeping all its economic policy tools within reach as the trade war with the United States gets longer and costlier, but still sees more aggressive action like interest rate cuts as a last resort should the dispute get uglier, policy sources say.
Heading off a sharper economic slowdown remains Beijing’s top priority, though officials fear easing too much could fuel debt and financial risks, according to government advisers involved in internal policy discussions.
Politburo - Decision-making - Body - Communist - Party
The Politburo, a top decision-making body of the ruling Communist Party, is expected to meet later this month to discuss economic and policy issues for the rest of 2019.
Barring a trade meltdown or other shock, the most likely options to boost growth in coming months include more fiscal spending and liquidity infusions by the central bank in various forms, sources said, building on similar steps over the past year.
Markets - China - Signals - August - US
But financial markets may be more focused on what China signals in early August, if the U.S. Federal Reserve cuts interest rates as widely expected on July 31.
While a Fed cut would give China more room to move, possibly with a symbolic trimming of its short-term market rates, Reuters sources said there was no urgency do so, noting there is already ample liquidity in the financial system and asserting earlier stimulus measures are showing signs of kicking in.
Policy - Bit - Rates - Fed - Benchmark
“Monetary policy should be a bit looser, we should cut rates after the Fed but the benchmark rate is not very useful,” one said.
But a second source said the central bank could still cut the benchmark if economic conditions deteriorate sharply.
Circumstances - Shock - Fed - Rates - Economy
“Under special circumstances – if the external shock is strong, the Fed continues to cut rates and the global economy is bad and trade frictions return – it’s possible to cut (the benchmark) once. The main aim of using...
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