China’s monetary policy toolkit adequate to deal with economic uncertainties – Xinhua


Aerial photo taken on Jan. 2, 2022 shows an overseas factory and warehouse construction project at the Yangpu bonded port area in Yangpu Economic Development Zone, Hainan Province, southern China. China). (Xinhua/Pu Xiaoxu)

BEIJING, April 2 (Xinhua) — China has an adequate monetary policy toolkit to support economic growth and bolster market confidence amid a changing economic landscape, analysts said.

The recent central bank meeting sent positive signals about how China might steer its monetary policy amid a gloomy global economic outlook.

In addition to prioritizing stability, the meeting specifically encouraged the use of structural monetary tools to channel more targeted support to agricultural enterprises and small businesses.

Structural monetary tools, as well as cuts in interest rates and the reserve requirement ratio, are among China’s monetary policy instruments. Analysts believed that with a substantial policy toolkit at hand, the country had room to maneuver in its monetary policy.

Despite the pandemic, the world’s second-largest economy has remained committed to prudent monetary policy over the past two years, in stark contrast to excessive money printing in some economies that was aimed at reviving growth.

Ahead of the central bank meeting, the State Council’s Financial Stability and Development Committee met on March 16, promising concrete actions to support the economy in the first quarter.

Monetary policy should take the lead to deal with the situation, while new lending should maintain appropriate growth, according to the meeting.

To support the economy, China has since the beginning of this year encouraged local banks to issue more inclusive loans for small and micro businesses through market-based means, cut interest rates by its medium-term loans and to lower the prime lending rate.

Supported by these targeted policy measures, the country’s financial market has so far remained generally stable, with several financial indicators reporting upbeat numbers.

In January, lending rates for businesses fell to 4.5%, the lowest level since reform and opening up in 1978, with the number of small and micro businesses supported by inclusive loans exceeding 48 million.

Going into the second quarter, analysts expected financial authorities to step up the implementation of prudent monetary policy and deploy more effective support to the real economy.

A staff member demonstrates vinegar making through a live broadcast at a vinegar museum in Zhenjiang, east China’s Jiangsu Province, April 20, 2020. (Photo by Feng Jiangjiang/Xinhua)

The approach of “taking the initiative to deal with the situation” came at the right time, said Lou Feipeng, a researcher at the Postal Savings Bank of China, because the goal of stabilizing growth requires proactive measures to stimulate the real economy, ward off financial risks and deepen financial reform.

More structural monetary policy tools should be introduced if the economy faces considerable downward pressure or an urgent need from market entities, said Wen Bin, chief researcher at China Minsheng Bank, citing the creation carbon reduction support tools from the central bank last year.

Wang Yifeng, an analyst at Everbright Securities, saw the need to cut interest rates to spur the recovery in effective demand, stabilize market expectations and improve risk appetite.

Dong Ximiao, chief researcher at Merchants Union Consumer Finance Company, said there is still room to reduce the reserve requirement ratio.

Whatever tools are used, the country has reassured the market that it will adjust the strength and pace of its monetary policy according to the domestic situation.

Ignoring concerns about the impacts of recent changes in developed economies’ monetary policy, central bank official Sun Guofeng said the changes would only have “limited impacts” on China as the country made full use of the intercyclical adjustment and maintained a reasonable and ample level. liquidity in the market.

Moving forward, Lou said that in addition to maintaining continuity and stability, China’s monetary policy should be more forward-looking and enhance synergy with other macroeconomic policies to promote healthy and sustainable development.

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