Investing.com - The leverage ratio in China is likely to rise slightly in the near term despite the government's push to deleverage and the current priority is to slow the pace of growth in that ratio, Yi Gang, deputy governor of the People's Bank of China, said on Friday.
In an interview with state TV ahead of the two-day G20 Hangzhou Summit starting Sept. 4, Yi said China's overall leverage ratio is relatively high, particularly for the corporate sector, and the central government has made the right call to deleverage.
"But in the short term, we need to stabilize the leverage ratio first," Yi said. "Stable means stopping the leverage ratio from rising further. But we can't even achieve that in near term."
"More likely, the overall leverage ratio will still rise a bit in the nearfuture. So we have to slow the pace of the increase in the leverage ratio first," he added.
Talking about the monetary policy bias, Yi said prudent monetary policy so far this year has had a good effect and the liquidity level is ample.
"Monetary policy needs to create a benign environment in a proper way, which can facilitate the reform process," Yi said.
"If monetary policy is too loose, it will make companies comfortable, and therefore, there will be no incentive to push forward reform. If monetary policy is too tight, it could makes reforms too painful to push forward as well," he added, noting the need for neutral monetary policy for supply side reforms.