context: Monetary policy-making is a difficult task in H2 2019. Inflationary pressures are mounting, while external uncertainties continue to threaten stability. The latest economic work symposium sends strong signals to policymakers about the importance of policy stability.
On 12 Nov 2019, Premier Li Keqiang 李克强 presided over the Economic Situation Experts and Entrepreneurs Symposium. The symposium reiterated downward economic pressure has increased. Li says it is necessary to have an ‘awareness of hardship’ and the 'spirit to do hard work'. He stressed the necessity of policy stability and using counter-cyclical adjustments more effectively.
The symposium stipulated
- enhance effectiveness and sustainability of fiscal and monetary policies
- strengthen support for the real economy especially SMEs
- optimise use of local government special-purpose bonds
- expand effective investment and endogenous growth engines
- secure employment stability and support job-seeking
- dismantle institutional barriers and promote consumption
- accelerate recovery of pig production
Ren Zeping 任泽平 Evergrande Research Institute chief economist believes weak October 2019 credit data indicates the domestic slowdown has exacerbated. Tight real estate financing and high premiums for private SMEs are squeezing credit creation, Ren warns. Structurally, on-balance sheet loans, special bonds, and unacceptable bank drafts have dragged down credit growth. Ren suggests tweaking LPR and MLF interest rates in several steps to reduce the impact of interest rate adjustments on the market while offering mild monetary stimulus to the economy.
Differentiated reductions in deposit and loan benchmark interest rates can put pressure on banks’ net interest margin, argues Tang Jianwei 唐建伟 Bank of Communications Finance Research Centre chief analyst, adding that banks should boost targeted liquidity to support SMEs. More broadly, the central bank may lower the required-reserve ratio (RRR) when liquidity is tight at the end of 2019, Tang contends.