(Economic Observer) China's prudent monetary policy will continue next year, why is there a "price level expected target"?

Beijing, 12 Dec (ZXS) -- The Central Economic Work Conference was held in Beijing from 12 to 12 December. The meeting made it clear that a prudent monetary policy will continue to be implemented. While the "steady" tone has been maintained for many years, new formulations have emerged this year.

The meeting pointed out that it is necessary to maintain reasonable and abundant liquidity, and that the scale of social financing and money supply should match the expected targets of economic growth and price levels.

Pang Ming, chief economist and research director of JLL Greater China, told China News Service that this statement was put forward for the first time, and the past expression was to "keep the growth rate of money supply and social financing scale basically matching the growth rate of the nominal economy".

He said: In fact, the "nominal economic growth rate" is precisely a combination of the "expected target of economic growth and price level," but this time it is particularly proposed to consider the "expected target of economic growth and price level," which shows that it is necessary to accurately grasp the law and new characteristics of the supply and demand of money and credit, comprehensively consider the development fundamentals, macroeconomic growth pattern, supply and demand situation, price level, and market expectations, and comprehensively use a variety of monetary policy tools to maintain a reasonable growth, a steady pace, and an improvement in efficiency in the total amount of money and credit and the scale of social financing.

Ming Ming, chief economist of CITIC Securities, said that the new expression may mean that the government will exert efforts through monetary and financial policies to increase the broad money supply flowing into the real economy, thereby boosting the price level.

Wen Bin, chief economist of Minsheng Bank, pointed out that compared with the statement of the 2022 Central Economic Work Conference, the original target of "nominal economic growth" is split into "economic growth" and "price level expectation target", focusing on the important role of monetary policy in stabilizing price level expectations, and inflation may become an important factor in judging whether monetary policy is "effective" in the next stage.

"Since 2023, prices have continued to run at a low level, and it is expected that monetary policy is expected to be moderately strong in 2024 to promote a moderate rise in the price level." Wen Bin said.

It is worth noting that the Fed is nearing the end of its interest rate hike cycle, and there may be a rate cut next year, what will be the impact of this policy shift on China's monetary policy?

Liu Jing, chief economist of HSBC Global Research Greater China, told China News Service that HSBC predicts that the Federal Reserve may begin to cut interest rates as early as the third quarter of next year, and cut interest rates or 50 basis points throughout the year, which will provide more space for the operation of domestic monetary policy, and it is expected that in the second half of 2024, the People's Bank of China will slightly reduce the policy rate by 20 basis points, and at the same time, there may be a 50 basis point RRR cut to provide liquidity support for economic development and transformation.

Liu Jing believes that from the perspective of enhancing the consistency of macroeconomic policy orientation, in order to cooperate with the tasks of stabilizing real estate, localizing bonds and cultivating new growth poles, China's monetary policy will make efforts in related fields.

Cheng Shi, chief economist of ICBC International, believes that 2024 will be a year when the monetary environment will turn from tight to loose, and the European and American central banks will gradually shift from raising interest rates to cutting interest rates. As the Fed enters a cycle of interest rate cuts, the inversion of interest rate differentials between China and the United States is expected to ease, which will also reduce the pressure on the RMB exchange rate and reduce the constraints on China's monetary policy. It is expected that China's monetary policy will continue to maintain support in 2024, and it is expected to continue to cut interest rates to create a favorable monetary and financial environment for economic recovery and debt resolution. (ENDS)