Investing.com - The People's Bank of China has limited room to use further monetary easing, a senior central bank official said Thursday, citing potentially negative implications it could have on the economy, including higher capital outflows and corporate leveraging.
"Room for monetary policy is relatively small. Because of low investment returns in the real economy, interest rate and deposit reserve ratio cut will encourage funds to flow high risking assets and fuel accumulation of financial risks...An easing monetary and credit condition will further boost corporate leverage ratio and weaken government's efforts in shutting down excessive production capacity," Lu Lei, head of the PBOC's research department said, warning that banks could see rising non-performing loans this year and that risks associated with corporate debt are on the rise as well.
Lu made the remarks in his fourth-quarter research report written for the China Finance 40 Forum, an academic organization whose members are mostly current or former central bank officials and researchers.