China: Modest April Monetary Easing

Published on April 8, 2022
SGH Insight
On the heels of a Q1 GDP slowdown in China, Covid lockdowns in Shanghai, and repeated signals from Premier Li Keqiang that more economic stimulus will be forthcoming, markets are trying to assess just how aggressively the People’s Bank of China might loosen its reins on monetary policy.

The answer, according to a senior official in Beijing, is that overall monetary policy in April will be slightly looser than in the previous three months.

On the monetary policy front, officials do not rule out cutting the Reserve Ratio Requirement Ratio or lowering the loan prime rates “in the next few weeks,” but temper expectations in noting that the objective is to set monetary policy in April that will be “slightly looser” than it is now.
Market Validation
Bloomberg 4/13/22

China’s cabinet said the central bank would cut the amount of money that banks have to keep in reserve at the proper time, a further sign there is likely to be additional monetary stimulus to support the economy. “China will use monetary policy tools including a RRR cut at an appropriate time, and will step up financial support to the real economy, especially industries and small businesses that have been hit hard by the pandemic,” the State Council said after a meeting Wednesday, according to state-run television. The People’s Bank of China usually announces a reduction within days of the State Council making such a statement.

On the heels of a Q1 GDP slowdown in China, Covid lockdowns in Shanghai, and repeated signals from Premier Li Keqiang that more economic stimulus will be forthcoming, markets are trying to assess just how aggressively the People’s Bank of China might loosen its reins on monetary policy.

The answer, according to a senior official in Beijing, is that overall monetary policy in April will be slightly looser than in the previous three months.

As backdrop, Beijing estimates economic growth to have come in at around 5.0% for Q1, better than expected. Officials say that by that measure, there would be no need for looser monetary policy.

The outbreak of Covid-19 in Shanghai and other cities has of course affected economic activity in April, impacting not only the service sector but also, to varying degrees, the industrial and transportation sectors. And China’s State Council is aiming to ensure that second quarter GDP comes in higher than the first quarter.

At a State Council Executive Meeting on Wednesday, Premier Li Keqiang asked China’s financial officials to ensure that they were flexibly using various monetary policy tools such as re-lending in a timely manner, keeping liquidity reasonably sufficient, providing financial support for consumption and effective investment, and pushing towards rapid increases in medium and long-term loans to manufacturers to provide robust support to the real economy.

With that in mind, Beijing will soon launch several preferential measures to support manufacturing, Small and Medium-Enterprises, affordable housing, and key investment projects.

On the monetary policy front, officials do not rule out cutting the Reserve Ratio Requirement Ratio or lowering the loan prime rates “in the next few weeks,” but temper expectations in noting that the objective is to set monetary policy in April that will be “slightly looser” than it is now.

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