China Sticks to its Prudent Monetary Policy Stance

China Sticks to its Prudent Monetary Policy StanceChina will not change its decision on its prudent monetary policy stance, but is consider adopting a more flexible approach by tilting toward a tighter or ease its direction. The governor of the People’s Bank of China Zhou Xiaochuan stated during an annual meeting of the country’s top legislature that the Chinese economy is facing a new normal or a new stage of slower growth in the past few years.

The new normal is still a normal situation and is not something special nor problematic, but it does need a new term to define its monetary policy. Even when the Central Bank recently released a number of monetary policy tools that the public is not familiar with, such as standing lending facility, the amount of liquidity that is released of each policy was not huge enough compared with the size of the Chinese economy. Even with this various monetary policy tools, the growth of money supply is still moderate, showing their prudent momentary policy is still unchanged.

In February, Chinese banks have extended 1.02 trillion yuan of new loans that is well above market expectations. For the first two months new lending rose by 2.49 trillion yuan. While the central bank tried to inject more capital into several areas of the economy where structural changes is need, it will take time to see an increase in positive effect of such policies. the public should not overestimate the importance of the liquidity management and money issuance of the adjustment of the economic structure.

While people think that monetary policy can work in stimulating the economy, the monetary policy should not play this role. It is more important that the overall economic restructuring is done in which the monetary policy can provide a stable environment.

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