Tuesday, 6 June 2023

China will Proceed with its Conservative Monetary Policy

According to a central bank official speaking at a news conference on Thursday, China will continue to pursue a cautious monetary policy to support the real economy and there is no rationale for either long-term deflation or inflation in the country.

Consumer demand is anticipated to continue to improve with financial support, and consumer price inflation will gradually revert to the average level of the previous years with a U-shaped full-year rise, according to Zou Lan, chief of the monetary policy department at the People’s Bank of China.

A Monetary Policy

According to Yuekai Securities’ senior economist, Luo Zhiheng, the present trend in price rise is not attributable to deflation but rather a decline in the cost of petroleum and vegetables, as well as relatively sluggish demand for durable products.

According to indications like the purchasing managers index readings and social finance, China’s economic recovery is now progressing as planned, according to Luo.

  • China will continue to pursue a cautious monetary policy to support the real economy.
  • China’s economic recovery is now progressing as planned, according to Luo.
  • China had avoided making significant changes to interest rates to manage interest rate risks.

In the press conference, Zou stated that the failure of Silicon Valley Bank in the United States had demonstrated the importance of paying attention to interest rate risks. He also noted that China had avoided making significant changes to interest rates, which had made it easier for financial institutions to manage interest rate risks.

According to Zou, the PBOC will keep its monetary policy stable, keep interest rates at a reasonable level, and use structural monetary instruments even more to boost the economy.

Wen Bin, the head economist at China Minsheng Bank, predicted that the general level of interest rates in the nation will remain stable because there is less need to cut them now that the economic recovery is gaining traction.

The PBOC is more likely to employ structural policy instruments to lower the financing costs of particular industries rather than lowering benchmark interest rates, according to Wen.

China’s one-year loan prime rate, a market-based benchmark lending rate, came in at 3.65 percent on Thursday and remained steady for the eighth consecutive month, pointing to a requirement for stable interest rate levels. According to the PBOC, the over-five-year LPR, upon which lenders base their mortgage rates, also stayed steady on Thursday at 4.3 percent.

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