Last week, Bloomberg reported China’s central bank, the People’s Bank of China (PBOC), has announced its commitment to maintaining a targeted and stable monetary policy to support the country’s economic growth. Governor Yi Gang emphasized the bank’s confidence in achieving the official growth target of approximately 5% for the year.
Speaking at a symposium in Shanghai, Governor Yi Gang reiterated the PBOC’s alignment with the decisions and plans of the Party Central Committee and the State Council in implementing a sound monetary policy. The bank aims to strengthen counter-cyclical adjustments, provide extensive support to the real economy, promote full employment, and ensure currency and financial stability.
The emphasis on counter-cyclical adjustments in monetary policy has been positively received by experts in the field according to Securities Daily. Ming Ming, the chief economist of CITIC Securities, sees this signal as an opportunity for reduced financing costs for the real economy. He highlights that while the Chinese economy has shown better-than-expected performance since last year, the current economic improvement remains primarily restorative.
Wen Bin, the chief economist of Minsheng Bank, acknowledges the positive start in China’s economic operation since the first quarter, with a reduction in the triple pressures of demand contraction, supply shocks, and weakened expectations. However, economic indicators have experienced a slowdown since April, resulting in a slower-than-anticipated recovery.
In light of the recent inflation data, which indicates weak domestic demand, experts suggest that there is a relatively high likelihood of interest rate cuts soon. Ming Ming anticipates a potential reduction of 5 to 10 basis points in the MLF (Medium-term Lending Facility) interest rate as early as June 15. If implemented, adjustments in the 7-day reverse repurchase rate and the LPR (loan market quotation rate) for terms of 1 year or more than 5 years may follow suit. However, the necessity for a reserve requirement ratio (RRR) cut in the short term is considered relatively limited, as it currently serves as a liquidity supplement tool.