The People's Bank of China (PBOC) said Friday that growth in new bank lending and the M2 money supply declined in April due to seasonal adjustments but that liquidity remains within a reasonably ample range.

Fresh data showed that China's yuan-denominated loan growth slowed to 13.5 percent in April. That came as the growth rate for the monetary supply, as indicated by M2, slipped to 8.5 percent while the expansion of total social financing also slowed to 10.4 percent.

Officials with the PBOC said that the central bank has consistently maintained a prudent and neutral monetary stance, attributing the monthly fall to seasonal adjustments.

“The monthly fall is usually due to seasonal adjustments and should not be over-emphasized. The lending and money supply still functioned in a reasonable range and in accordance with GDP growth pace,” said Zhang Wenhong, Deputy Director for PBOC's Statistics and Analysis Department.

Zhang further explained that “If you calculate the yuan-denominated loan in the first four months of this year, it actually increased 4.7 trillion yuan (about 690 billion U.S. dollars) year on year, which is remarkable growth. Also, the loans allocated to the real economy actually accounted for 67.7 percent of the total social financing in April, which also increased 1.9 percent annually and reflected a healthier structure for offering targeted support to the private sector.”

The PBOC implemented a targeted reserve requirement ratio (RRR) cut on Monday that will take effect next Wednesday. The move was expected to inject 280 billion yuan into China's small banks and to increase lending to small and medium-sized enterprises (SME).

Sun Guofeng, Director for PBOC's Monetary Policy Department, considered the latest cut a solid move to “implement tasks assigned by the Central Economic Work Conference.” Based on Sun's words, it will effectively inject liquidity to SMEs, especially those located in county jurisdictions.

“We scientifically divided three categories for commercial banks and deployed the ratio cut plan for three stages, for the sake of allocating liquidity to targeted areas at a steady pace,” Sun stated.

Meanwhile, a financial derivative instrument, known as Credit Risk Mitigation Warrants (CRMWs) to hedge credit default risks, has strengthened investors' confidence in private business, according to the PBOC.

CRMWs mean that the bond buyer could receive compensation if the bond issuer defaults, which could support bond issuances by private enterprises. Zou Lan, Deputy Director for PBOC's Financial Market Department, noted that CRMWs improved the operating circumstances of enterprises with strong fundamentals but troubled cash flows.

“We saw 56 private enterprises issue 87 CRMWs, amounting to around four million yuan. It actually did work out amid a period of widespread worries toward private sector's capacity to repay the debt. Through the process, we insist on the market-oriented principle. The aim is to help high-quality enterprises survive the hard times, not to offer indiscriminate aid to all enterprises,” Zou said.

The PBOC reiterated that its prudent policy stance and consistent fine-tuning have the capacity to counter headwinds from external economic circumstances.