By Yawen Chen
NUSA DUA, Indonesia (Reuters) - China central bank governor Yi Gang said on Sunday he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant.
China faced "tremendous uncertainties" due to the impact of tariffs and trade frictions and was seeking a "constructive solution" to the current trade tensions, Yi said at a seminar on the sidelines of the annual International Monetary Fund and World Bank meetings on the Indonesian island of Bali.
"We still have plenty of monetary policy instruments in terms of interest rate policy, in terms of RRR. We have plenty of room for adjustment, just in case we need it," Yi said.
Beijing and Washington have slapped tit-for-tat tariffs on each other and plans for bilateral trade talks to resolve the dispute have stalled, triggering a market rout and adding further pressure on China's already weakening economy.
The central bank chief said growing trade tensions with the United States had led to negative market expectations and created uncertainties.
"I think the downside risks from trade tensions are significant," he said. "Tremendous uncertainties (are) ahead of us."
However, Yi said China's economic growth would still comfortably reach its full-year target of around 6.5 percent with the possibility of overshooting, adding that he was comfortable with current inflation levels.
China has had four RRR cuts this year, reducing the amount of cash banks are required to deposit in the central bank and releasing billions in new liquidity to the market.
Asked if the excess funding would fuel debt fears, Yi said he believed the amount of liquidity pumped into the market was appropriate for stabilizing leverage.
China's monetary stance was still basically neutral, he said.
"The (benchmark) interest rate level is appropriate. I would say that interest rate level is more or less comfortable," he said.
Yi said he expected China's consumer price inflation to come in at around 2 percent for the year, with producer price inflation falling to a range of 3 percent to 4 percent.
China's current account could also turn positive this year with "a bit" of a surplus, but it would still account for less than 1 percent of gross domestic product, he said.
(Reporting by Yawen Chen; Editing by Muralikumar Anantharaman and Richard Pullin)
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