China’s monetary policy has ample room to meet challenges

China‘s economy grew just 0.4% in the second quarter from the same period last year, down sharply from 4.8% growth for the first three months, the government said on Friday, as widespread lockdowns to extinguish outbreaks of COVID-19 hobbled the world’s second-largest economy.

While June data showed signs of improvement, analysts do not expect a rapid recovery as China sticks to its tough zero-COVID policy, the countrys property market is in a deep slump and the global outlook is darkening.

“Looking out to the second half of the year, the foundation of our economic rebound is still not solid and economic operations still face many uncertain and unstable factors,” Sundays commentary said.

“In terms of coping with new challenges and changes that may exceed expectations, monetary policy has sufficient space and ample tools.”

But many analysts believe the Peoples Bank of China has only limited room for further easing due to worries about capital outflows, as the U.S. Federal Reserve and other central banks aggressively raise interest rates to fight soaring inflation.

The Securities Times commentary cited China‘s relatively constrained monetary policy stance during the pandemic, preemptive policies to stabilise capital outflows, including cuts in banks’ foreign exchange reserves and a more flexible yuan currency, among factors that would provide a buffer to outside shocks.

“We will … keep the yuan exchange rate basically stable on a reasonable and balanced level and proactively and steadfastly manage new challenges and new changes,” it said.