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.