Chinese Central Bank Hails Use of Structured Monetary Policy Tools to Shore up Support of Real Economy During Pandemic

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The People’s Bank of China (PBOC) has hailed the use of structured monetary policy tools to shore up support for the real economy amidst global uncertainty in its latest monetary policy execution report.

The “2022 First Quarter China Monetary Policy Execution Report” (2022年第一季度中国货币政策执行报告) released on 9 May placed special emphasis on expanding support for China’s real economy amidst the uncertainty created by the COVID pandemic as well as military conflict in Ukraine.

The Report calls for “guiding financial institutions in the rational extension of loans,” for a key change of phrasing from its prior call to “guide financial institutions to vigorously expand the extension of loans” that featured on the Q4 monetary execution report.

The Report also makes frequent reference to the use of “structured monetary policy tools” (结构性货币政策) as a key tool for guiding the rational extension of loans, with an especial focus upon “key sectors and weak linkages, and enterprises severely affected by the pandemic.”

PBOC said that it would increase the agriculture and small-business support re-loan quota when appropriate, as well as make use of financial inclusion micro-and-small loan support tools; tech innovation re-loans and special re-loans for financially inclusive pensions.

PBOC recently unveiled three major re-loan initiatives, including 200 billion yuan in tech innovation re-loans, 40 billion yuan in financially inclusive pension re-loans, and the addition of a further 100 billion yuan in re-loan quotas to support the development and usage of coal.

PBOC deputy-governor Chen Yulu (陈雨露) also recently stated that the China central bank will launch 100 billion yuan in re-loans to support enterprise financing for key areas such as logistics and storage, in order to “provide more vigorous financial support to the coordination of pandemic prevention and social and economic development.”

Figures from PBOC indicate that since 2020 structured monetary policy tools have been used to increase the base monetary supply by 2.3 trillion yuan, as part of efforts to maintain rationally ample liquidity in the banking system and support stable growth in overall credit.

“Structured monetary policy tool play the role of a powerful lever, and have effectively supported economic recovery,” said PBOC’s monetary policy team in a recent report.

“Structured monetary policy tools play the role of providing targeted support to key areas and weak linkages,” said Cheng Qiang (程强), chief macro-economic analyst with CITIC Securities, to state-owned media. “The mechanism of ‘lending first and brokering later’ is better capable of driving the extension of credit.”