PBOC: China will stick to prudent monetary policy to ‘right degree’
Print Edition
CHINA will continue to adopt a prudent monetary policy that will be eased or tightened to the right degree, the country’s central bank governor said yesterday.
“Although we no longer use the term ‘neutral,’ the essence of our prudent monetary policy has not changed,” Yi Gang, head of the People’s Bank of China, told a news conference on the sidelines of the annual legislative session.
The policy will stress countercyclical adjustment, and mean that the increases in M2 money supply and aggregate financing should be in keeping with nominal GDP growth, Yi said.
It will also entail greater support to small and micro-sized enterprises and private businesses, he added.
China’s monetary policy, mainly devised to fit the domestic economic situation, will also take into account global factors and China’s position in the global economic system as well as the export-oriented sectors, Yi said.
He also said there is still some room for lowering the country’s required reserve ratio.
China’s overall reserve ratio, or required reserve ratio plus excess reserve ratio, now stands at roughly 12 percent, “a similar level as some developed countries,” Yi said. In the United States and Europe, the overall level is also around 12 percent, while that in Japan is more than 20 percent, he said.
Since the beginning of 2018, China has lowered the reserve requirement ratio by a total of 3.5 percentage points in five cuts, he said.
For a developing country, it is “suitable and necessary to maintain a certain level of required reserve ratio,” Yi said. “After our cuts, there is still some room for China to lower the ratio, but such room is much smaller than a few years ago.”
The governor added that the country will move toward the goal of a clear three-tiered framework for required reserve ratios, with large banks as the first tier, medium-sized ones as the second and small ones as the third.
China will reform and refine monetary and credit supply mechanisms, and employ as needed a combination of quantitative and pricing approaches, like required reserve ratios and interest rates, to guide financial institutions in increasing credit supply and bringing down the cost of borrowing.
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