Central bank requires new stimulus tools, analysts say

With few signs of a trough in China's economic slowdown, the central bank faces increasing pressure to dust off stimulus tools that have gone unused for more than two years.

Weakening growth has caught the People's Bank of China in the middle of a policy shift toward adopting market-based interest rates. As targeted liquidity injections have yet to arrest the slowdown, cutting banks' required reserve ratios and lending rates loom as standby measures.

"It is easier to use the traditional tools," said Liu Li-Gang, chief greater China economist in Hong Kong at Australia & New Zealand Banking Group Ltd. Once the financial system is accustomed to using market-based rates to set borrowing costs, "they could shift to being a Western-style rate-targeting central bank", said Liu.