Chinese Analysts Dissect Beijing’s Call for “Steady” Monetary Policy in 2022

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Domestic analysts expect the Chinese central government’s commitment to “steady” monetary policy in 2022 to involve the maintenance of ample liquidity for the real economy as well as more targeted channelling of credit to priority sectors.

China’s 2022 Government Work Report delivered by Premier Li Keqiang at the start of March made special reference to “expanding the vigour of implementation of steady monetary policy.’

The remarks triggered much discussion within China over its implications for the execution of monetary policy by the People’s Bank of China (PBOC) this year.

“Stable growth will create a large-scale demand for an increase in funds,” said Lian Ping (连平), chief economist for Zhixin Investment (植信投资), to state-owned media.

“In 2022 monetary policy could continue to expand the vigour of cross-cyclical and counter-cyclical adjustments and flexibly apply open market operations, thus maintaining rationally ample market liquidity.

“This will better satisfy the demand for funds in multiple areas of the real economy.”

Wen Bin (温彬), chief researcher with Minsheng Bank, said that given that the average reserve ratio for Chinese financial institutions stands at 8.4%, there is still “room and necessity” for further cuts.

“Reserve ratio cuts will unleash long-term liquidity, which is of benefit to encouraging financial institutions to expand the extension of loans, and guide reductions in financing costs for the real economy.”

Qu Hongbin (屈宏斌), chief China economist for HSBC, said that China’s consumer price index (CPI) will continue to remain muted due to weak demand and a negative output gap.

“This has preserved ample room for monetary policy,” said Qu, who expects stronger growth in total social financing this year, as well as more channeling of loans to high-productivity areas.

Ming Ming (明明), chief economist with China CITIC Securities, expects funds to be directed specifically towards priority areas of the economy, including financial inclusion.

“In structural terms, funds will be directed more towards key areas and weak linkages, with expansion of the coverage of financial inclusion.”