The People’s Bank of China (PBOC) is seeking to balance supporting economic growth and curbing emerging risks, bank Governor Yi Gang (易綱) said on Monday, signaling a continuation of the central bank’s existing policy stance.
“Going forward, China’s monetary policy will, on one hand, adjust to new economic developments in a timely manner, and on the other hand maintain policy stability to avoid a policy cliff,” the central bank chief said at a virtual conference hosted by Hungary’s central bank.
He added that “China will try to maintain normal monetary policy for as long as possible and keep our yield curve upward sloping.”
Photo: Chinatopix via AP
China’s economy recorded growth of 2.3 percent last year, despite the COVID-19 slump, making it the only major economy to post an expansion.
It did so without a major increase in monetary policy stimulus, with officials attempting to keep control of debt levels.
With the recovery picking up speed, authorities have signaled they want to further scale back on stimulus and curb debt.
Yi said the country’s total debt-to-output ratio climbed to about 280 percent at the end of last year — up 20 percentage points from the previous year — and he expects it to stabilize this year.
The central bank has vowed there would not be any sharp turn in monetary policy as it seeks to maintain enough support in areas where the recovery is still fragile.
Top PBOC officials have said the nation’s interest rates are appropriate, indicating they are unlikely to make an adjustment anytime soon.
GREEN FINANCE
While the PBOC’s priorities for this year include stabilizing the country’s debt ratio and bringing credit growth in line with the expansion in nominal GDP, Yi also pledged to promote the development of green finance.
Yi said areas for improvement include revamping the system for green financial standards, improving supervision and disclosure requirements for green-finance-related information, and enhancing policy incentives and support tools for reducing carbon emissions.
At a separate symposium, PBOC adviser Ma Jun (馬駿) said that China should permanently abandon GDP targets from this year, and instead prioritize stabilizing employment and controlling inflation as the major goals of macroeconomic policy.
Continuing to set an official GDP target could prompt local governments to either inflate their statistics, or to borrow money to boost their economy, which would add to the financial risk of hidden debts, he said.
China should start adjusting its monetary policy now, Ma said, as the macro-leverage ratio climbed rapidly last year, and asset bubbles have started to emerge in the stock and property markets.
However, the policy shift should not take place too fast to avoid problems including the sudden suspension of projects and more bad loans.
M2 money supply growth this year should be kept at about 9 percent, he said.
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