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The head of the Chinese central bank says a lot of room for monetary adjustments in the trading series

NUSA DUA, Indonesia (Reuters) – Governor of the Chinese central bank, Yi Gang, said on Sunday he still sees plenty of scope for adjusting interest rates and reserve requirements, as the downside risks from US trade tensions remain significant.

FILE PHOTO: Chinese People's Bank (PBOC) Governor Yi Gang speaks at a panel discussion at the Boao Forum for Asia in Qionghai, Hainan Province, China April 11, 2018. REUTERS / Stringer

China is "exposed to tremendous uncertainties" due to the impact of tariffs and trades and seeks a "constructive solution" to current tensions, Yi said at a seminar on the sidelines of the annual meeting of the International Monetary Fund and the World Bank on Indonesia Island of Bali.

"We still have a lot of monetary policy instruments in relation to RRR, we have a lot of room for adjustments just in case we need it," Yi said.

Beijing and Washington have blamed each other's tariffs, and plans for bilateral trade talks to settle the conflict have stalled, triggering a market flight and putting further pressure on China's already flagging economy.

The central bank chief said that growing trade tensions with the US had led to negative market expectations and created uncertainties.

"I think the downside risks from trading voltages are significant," he said. "Enormous uncertainties (are) ahead of us."

However, Yi said China's economic growth would still comfortably reach its annual target of around 6.5 percent, with the possibility of overshooting, adding that it feels comfortable with the current inflation rate.

China has cut four RRRs this year, reducing the number of cash banks that have to deposit in the central bank and bringing billions of new liquidity to the market.

Asked whether the surplus funding would fuel debt fears, Yi said he believes that the amount of liquidity pumped into the market is likely to stabilize leverage.

China's monetary policy is fundamentally neutral, he said.

"The (benchmark) interest rate is reasonable, I would say that the interest rate level is more or less comfortable," he said.

Yi said he expects China's consumer price inflation to be around 2 percent for the year, with producer price inflation falling to a range of 3 to 4 percent.

China's current account could also look positive this year with a "some" surplus, but it would still account for less than 1 percent of GDP, he said.

Reporting by Yawen Chen; Cut by Muralikumar Anantharaman and Richard Pullin

Our standards:The Thomson Reuters Trust Principles.

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