Beijing’s political tools are enough to navigate the uncertainties

BEIJING: China has an adequate monetary policy toolkit to support its economic growth and bolster market confidence in a changing economic landscape, analysts said.

It comes after a recent People’s Bank of China (PBOC) meeting sent positive signals about how the East Asian country could steer its monetary policy as the global economic outlook remains murky.

In addition to prioritizing stability, meeting participants raised the need to leverage structural monetary tools to direct more support to agricultural enterprises and small businesses.

Structural monetary tools, as well as lowering interest rates and the reserve requirement ratio (RRR), are among China’s monetary policy instruments. Analysts believe that with a substantial policy toolkit, the country would have leeway in its monetary policy.

Despite the coronavirus pandemic, the world’s second-largest economy has remained committed to maintaining 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 held a meeting on March 16, during which concrete actions to support the economy in the first quarter were promised.

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 2022, encouraged local banks to lend more inclusively to micro and small enterprises through market-based means, cut interest rates on its loans to medium term and to lower the prime lending rate. rates.

Supported by these measures, the financial market has so far remained broadly stable, with several financial indicators pointing to optimistic readings.

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

As the country enters the second quarter, analysts expect financial authorities to step up the implementation of prudent monetary policy and deploy more effective support to the real economy.

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, prevent 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 by the PBOC of carbon reduction support tools last year.

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

Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co., said there is still room to reduce the RRR.

Regardless of the tools used, the country reassured the market that it would adjust the strength and pace of its monetary policy according to domestic situations.

Ignoring concerns about the impact of recent changes in developed economies’ monetary policy, PBOC official Sun Guofeng said the changes would only have a “limited impact” on China, as the country has made full use of the intercyclical adjustment and maintained a reasonable level. and abundant 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 its synergy with other macroeconomic policies to promote healthy and sustainable development.

About Ian Crawford

Check Also

Why EverQuote shares may remain weak

EverQuote (ALREADY) stocks are down nearly 40% since the start of 2022, pushing the 14-day …