At a top-level meeting on Monday it was decided that China will adopt a moderately loose monetary policy next year. China has maintained a prudent monetary policy for many years, and the adjustment to “moderately loose” is related to the overall economic situation at home and abroad.
At present, China’s internal and external environment have undergone great changes, with insufficient domestic demand and growing pressures on businesses. At the same time, the United States and other developed economies have turned to a looser monetary policy. The change to China’s monetary policy is being made based on the changed situation, while continuing with the previous requirement that “strong interest rate cuts” should be made.
The last time China used “moderately loose” to describe its monetary policy was around 2008-2010, and since then “prudent” has dominated. The new adjustment is aimed at further strengthening the management of expectations and sending a clear monetary policy signal to the market. When the transparency of monetary policy improves, its comprehensibility and authority will be enhanced, leading the market to form stable expectations on the trend of monetary policy and rationally optimize its decision-making.
China’s central bank has intensified the implementation of its monetary policy since the beginning of this year, cutting banks’ reserve requirement ratio twice by a total of 1 percentage point, and releasing huge liquidity into the market, which has promoted a significant reduction in the comprehensive financing cost of society, and further improved the quality and effectiveness of financial support for the real economy. At the same time, the loan prime rates have been cut three times, with the one-year LPR lowered by 35 basis points, and five-year LPR lowered by 60 basis points. The central bank has also adjusted real estate financial policies and created the tools to support the stable development of the capital market.
While meeting the financing needs of the real economy, these policies have continuously lowered the comprehensive financing cost of society, boosted market confidence and expectations, stimulated enterprises’ willingness to invest, and increased people’s spending power, effectively supporting economic recovery and high-quality development. In the first 11 months of this year, China’s trade in goods increased by 4.9 percent year-on-year.
The latest monetary policy will further facilitate the transformation and upgrading of China’s economic structure, and support entities to increase investment in green finance, innovation, and research and development, which will consolidate the foundation for the country’s stable economic growth and high-quality development.