Monetary Policy to Remain Steady as Fiscal Spending Surges Ahead

Monetary Policy to Remain Steady as Fiscal Spending Surges AheadThe Central Bank has announced that it will be keeping monetary policy steady for 2014, even when the finance ministry stated that fiscal spending has moved ahead by nearly 25 percent in May compared to a year earlier which highlighted the efforts of the government to energize the slowing economy. The central bank is describing the policy as being prudent in the past years and when loosening or tightening the policy reins, authorities are still gently easing the policies to counter the cool down of the world’s second biggest economy.

The People’s Bank of China stated that the external demand was uncertain as capital flows were volatile and financial risks are fast weighing down the economy. The bank further said that it will be lowering its reserve requirement ratio to a level that must be held by banks that have sizable loans especially to the farming sector and to small and medium sized enterprises. This will be second cut down after a cut in April that is aimed at rural banks.

Reorienting the economy away from exports and investment and lead it towards domestic consumption, China needs to speed up the interest rate liberalization and work in introducing insurance deposits.

Furthermore there will be two separate programs to be initiated that allow foreigners to do investment in the Chinese capital markets and Chinese investors to invest overseas will be expanded. These two programs will be known as QDII or qualified domestic institutional investor and the QFII which is the qualified foreign institutional investor.

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