BEIJING, Aug 15 (Reuters) - China's central bank is unlikely to tighten policy further in the second half of this year, which could cap rises in market interest rates, a central bank adviser on Tuesday was quoted as saying by the state-run China News Service.
Under its "prudent and neutral" stance, the central bank shifted to slight tightening at the start of the year, guiding market interest rates higher during the first quarter. But it later pumped out substantial cash in response to a surge in short-term rates caused by a financial deleveraging drive.
"Financial market rates, in general, will not go up again in the second half, but will stay stable or even fall slightly," Sheng Songcheng, an advisor to the People's Bank of China, was quoted as saying.
The weighted average lending rate for non-financial firms, a key indicator reflecting corporate funding costs, rose 14 basis points in the second quarter to 5.67 percent, following an increase of 26 basis points in the first quarter to 5.53 percent, the PBOC said on Friday in its second-quarter policy report.
The adviser's comments come at a time China's de-risking program to contain debt continues, and as weaker-than-expected July data suggested the economy is starting to cool under the weight of higher financing costs and a slowing property market.
In June, sources told Reuters that the central bank would hold off on further policy tightening and could even slightly loosen its grip in coming months.
Responding to market expectations that the PBOC could cut banks' reserve requirement ratio (RRR) again if it aims to achieve a steady money supply growth, Sheng said an RRR cut would send too strong a signal on policy loosening to the market.
"The central bank is much happier to increase money supply via monetary tools like SLF, MLF and PSL," he added.
Standing Lending Facility, Medium-term Lending Facility and Pledged Supplementary Lending are the monetary policy tools devised by the PBOC to provide short-term funds to the interbank market.
The PBOC is expected to cut the reserve requirement ratio by 50 basis points (bps) in the first quarter of 2018 to 16.5 percent, a Reuters poll showed in July. (Reporting by Stella Qiu and Kevin Yao; Editing by Richard Borsuk)