China to leverage agile monetary policies to bolster real economy

China has announced that it is making nimble use of monetary policy tools to shore up the real economy amid growing domestic and external uncertainties.

A State Council executive meeting on Wednesday stressed the importance of implementing prudent monetary policy to maintain reasonably sufficient liquidity, explore and adopt financial measures to bolster consumption and effective investment, and support financing in key fields and for weak links.

“Under the current situation, market-oriented and law-based methods will be adopted to encourage financial institutions to deliver more benefits to the real economy,” Chinese Premier Li Keqiang said while chairing the meeting.

Analysts noted Wednesday’s meeting emphasized the targeted use of monetary tools. Some believe China has a wide array of tools at its disposal in the second quarter to maintain stable growth, such as cutting the reserve requirement ratio (RRR) and interest rates, and dialing up open market operations.

“The banking sector, considering its overall decent profit growth last year, harbors potential to release funds for the real economy,” said Wen Bin, chief researcher of China Minsheng Bank.

Many listed banks have this year accelerated loan issuance. The Bank of Communications and the Agricultural Bank of China both expect to issue over 10 percent more loans in 2022 than they did last year.

Since the second half of last year, the country has twice reduced the RRR for financial institutions, with the two cuts injecting a total of 2.2 trillion yuan (about 345.6 billion U.S. dollars) of long-term funds into the economy.

In January, the central bank also cut the interest rates of its medium-term lending facility loans and reverse repos, and lowered benchmark lending rates.

China has pledged to use monetary policy tools to adjust both the monetary aggregate and monetary structure, so as to provide more robust support for the real economy, the meeting said.

Wednesday’s meeting called for efforts to increase re-lending for agricultural and small enterprises, and make re-lending arrangements for technological innovation and elderly care services.

As a structural monetary policy tool, re-lending can help financial institutions provide credit support for market entities at lower interest rates, and accurately funnel funds into companies and sectors in need, said Dong Ximiao, a part-time researcher at the Institute for Financial Studies at Fudan University.

For the two new re-lending arrangements, the People’s Bank of China will respectively provide re-lending support for 60 percent and 100 percent of loan principals. The arrangements are expected to help facilitate financing for technology start-ups and meet the demand for elderly care.

Wednesday’s meeting also highlighted the role of financial services in expanding consumption and effective investment, specifically for new urban residents, government-subsidized housing, key projects and manufacturers.

Source: Xinhua