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China has enough tools to ensure stable economy: Premier

China has enough policy tools to keep the economy stable despite "deep rooted" structural problems and downward pressure, Premier Li Keqiang said on Thursday, channeling calm amid concerns about the country's slowdown.

The renminbi currency, watched closely by global markets, will be kept within "a reasonable range", Li told the forum.

"China is a responsible nation and there’s no possibility that our exchange range will depreciate in the long-term," he said.

China's Money-Market Operations Inject Most Cash in Seven Weeks

China’s central bank added the most money to the financial system through open-market operations this week since before last month’s Lunar New Year holiday as a convertible bond sale and lenders’ quarter-end deposit needs spurred demand for funds.

The People’s Bank of China injected a net 180 billion yuan ($27.6 billion), the most since the period ended Feb. 5, data compiled by Bloomberg show. A March 18 bond sale by Jiangsu Jiangnan Water Co. locked up an estimated 200 billion yuan, according to Huachuang Securities Co. Commercial lenders need deposits at the end of each quarter to meet regulatory checks, while interbank borrowing costs tend to rise in the March-April period as banks lodge tax payments with the PBOC. The benchmark seven-day money rate climbed to a six-week high on March 23 before retreating.

“The market was a bit tight earlier this week, when the money was frozen due to convertible bond sales - it then eased since Thursday on accumulative PBOC injections,” said Lin Yijian, an analyst at Guangzhou Rural Commercial Bank Co. “The market will face the challenge for quarter-end demand next week, but the central bank will step up injections if necessary.”

Durable Goods Report Highlights Risks to Q1 GDP

Our below-consensus call for Q1 GDP is based in part on tepid equipment spending and an inventory drag. Today’s durable goods report is on track with that, showing a drop in shipments and inventory drawdown.

Shipments of core capital goods, a proxy for current quarter equipment spending, fell for the second month in a row. That puts the three-month annualized rate of decline for this series at 6.8 percent.

When the three-month annualized rate of decline starts falling on a double-digit percentage basis, it is often an indication of recession. To be clear, we do not think the U.S. economy is headed for imminent recession, but the manufacturing sector is a clear vulnerability. Headline GDP growth figures will not be getting much help from business spending in the near future.

Speaking of headline GDP growth, today’s durable goods report also shows that inventories fell again in February. The 0.3 percent decline suggests a slower pace of inventory investment will be a drag on first quarter GDP growth. That fits with our forecast, which shows inventories subtracting 0.4 percent from headline GDP growth in the first quarter. This latest read suggests that drag might be even larger.

Reference: Reuters, Bloomberg, Wells Fargo’s Economic Indicators Reports