China’s Central Bank to Maintain Supportive Monetary Policy to Boost Growth
China’s central bank governor, Pan Gongsheng, has reaffirmed plans to maintain a supportive monetary policy to promote growth in 2025, as the economy faces fresh challenges from a looming trade war with the US.
Central Bank to Step Up Counter-Cyclical Policy Adjustment
At a financial forum in Beijing on Monday, Pan stated that the People’s Bank of China (PBOC) will "adhere to an accommodative monetary policy stance and orientation" in 2025. The central bank will also "step up counter-cyclical policy adjustment", a phrase typically referring to measures to boost the slowing economy. The PBOC will use various tools to keep liquidity ample and lower borrowing costs for companies and residents.
Monetary Policy Support Crucial Amid Trade War Risks
Monetary policy support will be critical to China’s economy next year as the US president-elect has vowed to impose steep tariffs on Chinese goods, threatening the outlook of exports, which have been a key growth driver for China since the pandemic.
Yuan Falls to Lowest Level in a Year Against US Dollar
The yuan fell to its lowest level in about a year against the US dollar on Tuesday, as traders added bearish wagers on lacklustre China growth amid risks of higher US tariffs.
China’s Economy Shows Signs of Stabilization
The world’s No 2 economy has shown some signs of stabilisation in recent weeks, after the central bank and other ministries unleashed a package of bold measures to shore up growth and the stock market in late September.
PBOC to Review Interest Rates and Reserve Requirement Ratio
The PBOC made outsize cuts to interest rates and the reserve requirement ratio (RRR), which determines the amount of money banks must set aside in reserves. It is expected to lower them again in the coming months, with the RRR cut potentially coming by the end of this year.
Changes to M1 Money Supply Definition
At the Monday event, Pan also announced changes to the scope of M1 money supply, saying it would improve the statistics. The measure reflects the actual purchasing power in the economy. The revised definition for the metric, which previously comprised mainly cash and corporate demand deposits, will include individual demand deposits as well as funds stored on payment platforms, such as China’s popular Alipay and WeChat digital wallets.
Conclusion
China’s central bank is likely to maintain a supportive monetary policy to boost growth in 2025, as the economy faces challenges from a looming trade war with the US. The central bank will step up counter-cyclical policy adjustment and use various tools to keep liquidity ample and lower borrowing costs for companies and residents.
FAQs
- What is China’s central bank’s plan for 2025?
The People’s Bank of China will maintain a supportive monetary policy to promote growth in 2025. - What is the central bank’s plan to boost the economy?
The central bank will step up counter-cyclical policy adjustment and use various tools to keep liquidity ample and lower borrowing costs for companies and residents. - What is the impact of the US-China trade war on China’s economy?
The trade war with the US poses a significant risk to China’s economy, particularly its exports, which have been a key growth driver since the pandemic. - What is the PBOC’s plan to review interest rates and reserve requirement ratio?
The PBOC is expected to lower interest rates and the reserve requirement ratio (RRR) again in the coming months, with the RRR cut potentially coming by the end of this year.
