China will base the pace and intensity of monetary policy on the domestic economy and inflation trends in the second half of the year, a central bank official said on Tuesday, following a surprise cut in bank reserves to bolster the economic recovery.

Sun Guofeng, head of the monetary policy department at the Peoples Bank of China PBOC, said Chinas policy will prioritise stability and focus on domestic conditions, adding that possible tightening by the U.S. Federal Reserve would have a limited impact on Chinas monetary policy.

Its normal for the United States and China to have different operations of their monetary policy, Sun said.

Chinas stance of prudent monetary policy has not been altered.

The PBOC announced on Friday it would cut the amount of cash banks must hold as reserves, releasing around 1 trillion yuan 154.67 billion in longterm liquidity to underpin its postCOVID economic recovery that is starting to lose momentum.

The PBOC last cut the RRR in April last year, when the Chinese economy was still badly affected by the coronavirus crisis.

Small firms are bearing the brunt of a recent surge in raw material prices as they are unable to pass on the higher costs to consumers.

The producer price index PPI, which is already near its highest in more than a decade, is likely to continue to hover at an elevated level in the third quarter, before falling back in the fourth quarter and next year, Sun said.

16.4648 yuan

Reporting by Shen Yan, Stella Qiu and Ryan…