China's monetary policy toolkit adequate to navigate economic uncertainties

Aerial photo taken on Jan. 2, 2022 shows a factory building and overseas warehouse project at the Yangpu Bonded Port Area in the Yangpu Economic Development Zone, south China's Hainan Province. (Xinhua/Pu Xiaoxu)

BEIJING, April 2 (Xinhua) -- China has an adequate monetary policy toolkit to shore up economic growth and boost market confidence amid changing economic landscape, analysts said.

The central bank's recent meeting has sent positive signals about how China might steer its monetary policy against the backdrop of a cloudy global economic outlook.

In addition to prioritizing stability, the meeting specifically urged the leverage of structural monetary tools to funnel more targeted support to agricultural and small enterprises.

Structural monetary tools, together with cuts in interest rates and reserve requirement ratio, are part of China's monetary policy instruments. Analysts believed that with a substantial policy toolkit at hand, the country has wiggle room in its monetary policy.

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

Prior to the central bank meeting, the financial stability and development committee under the State Council held a meeting on March 16, pledging concrete actions to bolster the economy in the first quarter.

Monetary policy should take the initiative to cope with the situation, while new loans should maintain an appropriate growth, according to the meeting.

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

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

As of January, lending rates for enterprises dropped to 4.5 percent, 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.

Entering the second quarter, analysts expected financial authorities to step up the implementation of the prudent monetary policy and roll out more effective support to the real economy.

A staff member introduces vinegar-making through livestreaming 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 cope with the situation" came at the right time, said Lou Feipeng, a researcher with the Postal Savings Bank of China, as the goal of stabilizing growth requires proactive moves to boost the real economy, ward off financial risks and deepen financial reform.

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

Wang Yifeng, an analyst with Everbright Securities, saw the necessity of cutting interest rates to spur the recovery of effective demand, stabilize market expectations and improve risk appetite.

Dong Ximiao, chief researcher with Merchants Union Consumer Finance Company said there was still room for reducing the reserve requirement ratio.

No matter what tools are utilized, the country has reassured the market that it will adjust the strength and tempo of its monetary policy based on domestic situations.

Shrugging off concerns over impacts from recent shifts in the monetary policy of developed economies, central bank official Sun Guofeng said these changes would only have "limited impacts" on China as the country has made full use of cross-cyclical adjustment and maintained reasonable and ample liquidity in the market.

Moving forward, Lou said that apart from maintaining continuity and stability, China's monetary policy needs to be more forward-looking and enhance synergy with other macro-economic policies in order to promote healthy and sustainable development.