(Adds quotes from a PBOC deputy governor paragraphs 3,4, monetary policy official paragraphs 7-9; context)
BEIJING, April 18 (Reuters) - There is still room for China's central bank to take steps to support the economy, but efforts are needed to prevent cash from sloshing around the banking system as real credit demand weakens, senior officials at the bank said on Thursday.
The world's second-biggest economy grew faster than expected in the first quarter, but several March indicators, such as property investment, retail sales and industrial output showed that domestic demand remains frail, weighing down momentum.
"A series of monetary policy measures introduced earlier are gradually taking effect, and the economy continues to rebound with a good start," Zhu Hexin, a deputy governor of the People's Bank of China (PBOC), told a news conference on Thursday.
"There is still room for monetary policy going forward, and we will closely watch the policy effectiveness, economic recovery, and achievement of goals, and make good use of reserve tools at the appropriate time."
China's central bank cautioned on Thursday against a "one-sided" pursuit of credit expansion after data showed a slowdown in bank lending, vowing to prioritise the quality of credit over size and move to revitalising existing loans.
The central bank has in recent weeks delivered modest cuts in banks' reserve requirement ratio (RRR) and interest rates as part of broad measures to support the economy, with more policy easing expected in the coming months.
Zou Lan, head of the PBOC's monetary policy department, told the briefing that efforts should be made to prevent the accumulation of "idle funds" as some banks extend more loans than actually needed and some firms use low-cost loans to buy wealth management products or lend to other firms.
"Credit demand has weakened compared to previous years, and the credit structure is also being optimised and upgraded," Zou said, adding that China's money supply growth could slow down and people should not simply look at year-on-year growth.
China will keep interest rates at appropriate levels but also prevent rates from becoming too low, he said.
New bank lending in China rose less than expected in March from the previous month, while broad credit growth hit a record low, boosting the case for the central bank to roll out more stimulus steps to help achieve an ambitious growth target.
The central bank said 2024 growth of money supply and total social financing - a broad measure of credit and liquidity in the economy - would match expected goals for economic growth and inflation.
China has the conditions to keep its foreign exchange market stable, Zhu said. China's "goal and determination in keeping the yuan exchange rate basically stable will not change," he added. (Reporting by Kevin Yao and Liangping Gao; Editing by Alex Richardson and Ros Russell)
