On February 11, the People’s Bank of China (PBoC) released the China’s Monetary Policy Implementation Report for the Fourth Quarter of 2021 (hereinafter referred to as the “Report”). The report examines the central bank’s transition to moderately accommodative monetary policy in the fourth quarter of 2021, as well as the macroeconomic situation and the outlook for monetary policy for 2022. In the opinion of ANBOUND researchers, monetary policy will continue to follow the moderately relaxed framework to achieve the objective of “stable growth”. However, when it comes to quantitative and structural policies, the central bank continues to push the fundamental framework of giving equal weight to quantitative and structural policies.
This implies that the central bank’s monetary policy would adopt more structural measures to tackle the problem of credit easing, in order to increase the capacity for social credit creation, on the basis of respect for “stability”. overall.
Regarding the implementation of monetary policy in 2021, the central bank’s report concluded that it had essentially achieved its policy objectives. These are reflected in the following: first, monetary and social finance growth rates matched and slightly exceeded nominal GDP growth rates, ensuring a “reasonable abundance” of liquidity; second, the macro leverage ratio has remained stable but is declining; third, credit rates have fallen; fourth, the financing structure has improved and support for SMEs and the real economy has increased; Fifth, the exchange rate has been stabilized and increased its flexibility. The report suggests that monetary policy in 2021 demonstrated flexibility, precision, rationality and moderation, while major financial indicators continued to sustain strong growth from a high base in 2020, with strong financial support to the real economy. Thus, in the future, monetary policy will be further adjusted around these aspects, which constitute the main aspects of monetary policy objectives.
As for the future trend of monetary policy in 2022, the report shows that prudent monetary policy should be flexible and moderate. It also involves strengthening inter-cycle regulation, while emphasizing the dual quantitative and structural function of monetary policy tools. It is important to focus on adequate, precise and forward-looking efforts, not only to refrain from engaging in strong stimulus policies, but also to meet the reasonable and effective financing needs of the real economy. At the same time, it should increase financial support to key areas and weak links in order to develop a better balance between a stable total volume and an exceptional structure. This practically indicates that after encouraging global easing in the previous phase, the PBoC has started to return to a long-term strategy that emphasizes both quantitative and structural factors. In particular, the report estimates that the gap between supply and demand in the global economy is likely to close in the future and, together with the gradual emergence of a high base effect, it is estimated that the China’s PPI annual growth rate will continue to decline in 2022. Overall, China’s economic supply and demand are basically in balance, and the PBoC’s implementation of normal monetary policy is conducive to the stability of the price trend in the medium and long term. This judgment shows that in the future, domestic monetary policy will not adopt “global easing” but will remain prudent to maintain global “stability”.
Going forward, monetary policy will adopt the “cautious” tone and focus on the policy framework that emphasizes both quantitative and structural aspects. In terms of quantitative policy, the PBoC still pursues its previous goal of “matching money supply growth and the social finance scale with nominal GDP” and maintaining a stable macro leverage ratio. The rest of this statement shows that the political objective of global “stability” has not changed. The report noted that when analyzing the liquidity situation of the banking system, it is advisable to focus on the general framework of central bank liquidity management rather than local factors. She added that it would not be possible to simply add some short-term and long-term influencing factors to estimate the liquidity surplus or deficit, let alone the maturity of monetary policy instruments as a factor. affecting the liquidity of the banking system and to use it to judge the degree of tightening of liquidity. From this, it can be seen that the PBoC will focus on maintaining stable liquidity on money supply issues, adhering to the long-term annual cycle or “crossover” objective, and making changes in increase or decrease in short-term liquidity. make full use of the monetary policy adjustment function.
The current control of total supply, as it is, is different from the previously mentioned money, social finance and credit. This time around, the PBoC is putting more emphasis on keeping the credit ladder growing. It is also a response to the current slowdown in credit ladder growth, indicating that the central bank’s focus has also shifted from easy money to easy credit. This is done with the intention of further strengthening the structural policy. The report mentions that it aims to improve the regulatory mechanism of the money supply. It further aims to continue to ease liquidity, capital and interest rate constraints on the supply of bank credit, in addition to cultivating and stimulating credit demand in the real economy, in order to help financial institutions to effectively increase the supply of credit. The PBoC’s statement implies that the money supply is only one of the limiting factors in promoting credit growth. Rebuilding bank capital and adjusting interest rates could be two other directions China’s central bank will take in the future to encourage credit development.
It should be noted that this time the central bank again insisted on not engaging in massive stimulus policies and that the previous phase of a series of easing measures such as reserve requirements and interest rate cuts have worked. In the meantime, the pace of the upcoming full easing will be adjusted, with greater emphasis on the “structural optimization” function to further optimize the credit structure and serve as a major tool for credit cost adjustment. This is to increase support for small and micro-enterprises, scientific and technological innovation, green development and other key areas. The importance of such a development is that in the future the focus will be on the use of structural instruments and the corresponding expansion in the scale of refinancing instruments will continue to be maintained. Looking ahead to housing finance policy, the report says it will stick firmly to the position that houses are for habitation, not speculation. He insists that real estate should not be used as a means of short-term economic stimulus. In addition, it projects targets for stabilizing land and housing prices. He also mentioned the implementation of a system of prudent management of real estate financing, the increase of financial support for the rental of housing, the safeguarding of the legitimate rights and interests of housing consumers, the satisfaction of reasonable of housing buyers and the promotion of healthy development and the virtuous cycle of real estate. Marlet. From this perspective, the real estate market places more emphasis on satisfying “reasonable demand” and is not the primary area in which the central bank promotes growth in the credit ladder.
The PBoC’s monetary policy report continues to focus on reforming interest rate and exchange rate mechanisms to promote the long-term goals of reducing funding costs and maintaining exchange rate stability. renminbi. Among the exchange rate targets, this is a highlight. It says the central bank is more concerned with domestic “stable growth” and “risk averting” and will continue to maintain broadly accommodative policy for some time, which could lead to a monetary policy gap. from China and the United States The renminbi exchange rate could come under pressure after the Federal Reserve tightened its policy. Whether the PBoC’s monetary policy will converge in the direction of the Fed’s tightening policy going forward is yet to be determined by developments in China’s domestic economic situation.
Conclusion of the final analysis:
The most recent PBoC report on monetary policy implementation signals a strategy of keeping the aggregate amount unchanged while achieving credit easing through structural optimization. This shift signals that monetary policy will continue to adopt a “cautious” tone going forward and adopt both broad and structural approaches to achieve the “credit easing” objective.