Bank of China Forecasts Loose Monetary Policy in 2023, Low Financing Costs for Real Economy


A new report from Bank of China (BOC) expects Chinese monetary policy to remain loose in 2023, as the central government maintains policy measures to help the economy deal with ongoing headwinds.

The “China Economic and Financial Outlook Report” (中国经济金融展望报告) released by the BOC Research Institute on 30 November said that macro-economic policy in China will focus on “stabilising growth and expediting recovery” next year, as well as improving the confidence and expectations of market actors, and restoring and strengthening endogenous growth drivers.

The Report said that in 2023 Chinese monetary policy will remain loose, and that financing costs for the real economy will remain at a comparatively low level.

“In 2023 global growth will ease, but the tight monetary policy of major economies will gradually relax, which will help to lighten the external restraints faced by Chinese monetary policy,” the Report said.

The Report forecasts GDP growth of 3.6% in a pessimistic scenario, 5.3% in its baseline scenario and 6.6% in an optimistic scenario.

It expects the renminbi to gradually stabilise in 2023 and post modest appreciation, as “adverse factors on the forex market will gradually be resolved.”

The Report also forecasts uncertainty on Chinese capital markets in 2023, with the bond market subject to the following trends:

  1. Overall bond issuance will remain stable, while the issuance structure will change. Government bonds will further play the role of supporting total social financing and driving effective investment, with expectations for ongoing increases. Enterprise and company bond issuance is also expected to increase as the economy stages a recovery.
  2. Bond yields will remain low, with adjustments to Covid prevention policy providing support to economic recovery. The Report also says that Chinese policymakers will maintain rationally ample liquidity to deal with weak expectations in the real economy, helping to keep bond yields low.
  3. Credit risk on the bond market will still require close attention. While the liquidity pressures of real estate enterprises will ease, their profitability has not yet seen marked improvement, there is still considerable credit risk. Micro, small and medium-sized enterprises also face operating pressures, making them a credit risk concern.