(Economic Observer) A prudent monetary policy must be precise and powerful. What are the policy considerations behind it?
China News Agency, Beijing, December 16 (Reporter Chen Kangliang) The just-concluded Central Economic Work Conference made an authoritative tone for China's monetary policy next year.
The meeting proposed that a prudent monetary policy should be precise and powerful.
It is necessary to maintain reasonable and sufficient liquidity, keep the growth rate of broad money supply and social financing scale basically matching the nominal economic growth rate, and guide financial institutions to increase support for small and micro enterprises, technological innovation, green development and other fields.
Maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, and strengthen the financial stability guarantee system.
Wen Bin, chief economist of China Minsheng Bank, said that the "prudent monetary policy should be precise and powerful" put forward by the Central Economic Work Conference is consistent with the tone of the recent Political Bureau meeting of the Communist Party of China Central Committee on monetary policy, which is a new formulation.
This formulation is different from the formulation of "moderately loose and tight", "reasonable and moderate" and "flexible and moderate" in monetary policy in recent years.
Why is there a new formulation of monetary policy?
Lian Ping, Chief Economist and Dean of Zhixin Investment Research Institute, said in an interview with a reporter from China News Agency that this may be related to the current internal and external environment facing China's economic development.
At present, the foundation for the recovery and development of the domestic economy is not yet solid, the external environment is becoming more complex and severe, overseas inflation is running at a high level, developed economies continue to raise interest rates, and the downside risks of the global economy are increasing.
In such a general environment, on the one hand, monetary policy must be "powerful" in order to cooperate with the proactive fiscal policy to increase efficiency, thereby boosting economic growth; , so as to effectively avoid financial risks such as currency depreciation.
What is the connotation of "precise and powerful" monetary policy?
According to Cheng Shi, Chief Economist of ICBC International, a precise and powerful monetary policy has the following characteristics: First, the policy goal is firmer, not disturbed by the complex impact of global supply shocks, and not shaken by short-term uncertain factors; Unswervingly support the orderly recovery of the real economy, coordinate and stabilize growth, employment, and prices; second, policy tools are more diverse, not sticking to one pattern, integrating quantitative tools and price tools, and orderly matching multiple tools; third is Policy transmission is more direct, directly reaching the real economy, directly reaching micro-groups, and directly reaching the needs of the people; fourth, the guidance of expectations is more efficient, improving the effectiveness of communication between policies and the market, and on this basis, boosting market confidence and maximizing policy effects.
Cheng Shi further pointed out that in 2023, the Federal Reserve may end raising interest rates in the first half of the year, and the terminal interest rate may be close to 5.25%-5.5%. , based on me, dynamically optimized.
Dong Ximiao, chief researcher of China Merchants Union Finance, said that "precision" means highlighting the role of structural monetary policy tools, increasing targeted "blood transfusion" in key areas and industries, implementing precise drip irrigation, and optimizing the credit structure.
"Powerful" means that the deposit reserve ratio should be lowered in due course to provide financial institutions with long-term stable low-cost funds, and continue to send a clear signal to the market to stabilize growth and expand domestic demand.
Lian Ping analyzed that this meeting requires a precise and strong monetary policy. Considering that the tightening monetary policy of major developed countries may slow down next year, the pressure of imported inflation will gradually ease, and China's domestic prices will generally be relatively flat. The room for loose adjustment will increase.
At the same time, the expansion of domestic demand still requires a precise and powerful monetary policy, and when necessary, appropriate reductions in reserve ratios and interest rates can be carried out.
Next year, the People's Bank of China can flexibly use aggregate tools such as RRR cuts to maintain reasonable and sufficient market liquidity; at the same time, it will continue to support key areas and weak links of China's economic development with structural tools of no less than the existing scale, including those mentioned in this meeting. Small and micro enterprises, scientific and technological innovation, green development and other fields.
Broad monetary policy also includes exchange rate policy.
Affected by factors such as the Fed's interest rate hike, the fluctuation of the RMB exchange rate has intensified this year. What will happen next year?
In Cheng Shi’s view, the Central Economic Work Conference has clarified the general tone of economic work of “stability” and “seeking progress while maintaining stability”. This will lay the foundation for China to achieve economic growth higher than the global average in 2023, and the economic foundation determines the performance of the currency. .
Based on this, it is expected that the RMB will remain basically stable against a basket of currencies next year, or even rise slightly.
As for the exchange rate of RMB against the U.S. dollar, considering that the Federal Reserve will stop raising interest rates next year, the U.S. economy may experience a phased recession, and the U.S. dollar index may decline. However, China’s monetary policy will maintain a prudent tone, and the steady appreciation of the RMB against the U.S. dollar has strong potential. market expectation.
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