How does the monetary policy work? Please be optimistic about this keyword!

　　Text/Xia Bin

　　At the Central Economic Work Conference to set the tone for economic work in 2022, the word "stable" has always been implemented and proposed to continue to implement a prudent monetary policy.

　　In a recent interview with the media, Yi Gang, the governor of the People’s Bank of China, also put the word “stable” on his lips when talking about the relevant work tasks of the central bank this year. So how should monetary policy embody this keyword?

Why emphasize on "stability"?

　　Yi Gang bluntly stated that the reason why the monetary policy of 2022 emphasizes "stability" is based on the current domestic and foreign situations.

　　He said that from a domestic perspective, China's economic resilience is strong and the fundamentals of long-term improvement will not change. However, under the triple impact of demand contraction, supply shocks, and weakening expectations, it is facing downward pressure in the short term, and the macroeconomic market must be stabilized.

　　From an international perspective, under the impact of the epidemic in the century, the external environment has become more complex, severe and uncertain, and the difficulty of maintaining internal and external balance has further increased. This also requires a stable economic and policy environment to deal with various external uncertainties.

　　It is precisely because of the need to hedge and eliminate instability factors that China needs to respond with "stability".

Zhang Ming, deputy director of the Institute of Finance of the Chinese Academy of Social Sciences and deputy director of the National Finance and Development Laboratory, pointed out that there are at least three external instability factors in China.

　　First, the new crown pneumonia epidemic is still raging, and mutant strains are emerging one after another. The epidemic prevention situation in 2022 is still severe.

　　Second, in the context of the rapid rise in domestic inflation, the Federal Reserve has accelerated the normalization of its monetary policy. In the first half of 2022, it will reduce debt purchases more quickly, and it may raise interest rates two to three times in the second half of 2022.

"Usually when the Fed tightens its monetary policy, we may face short-term capital outflows, a fall in the exchange rate of RMB against the US dollar, and an increase in foreign currency debt burden." Zhang Ming said.

　　Third, global commodity prices remain high, which will continue to bring imported inflationary pressures to the Chinese economy.

　　In Zhang Ming's view, one of the positive factors conducive to China's pursuit of "stability" is that the previous macroeconomic policies have been implemented in a modest manner, so that China's current monetary policy has ample room for improvement.

Stable policy at the beginning of the year

　　Maintaining continuous, effective, and reasonable cohesion of policies is an important manifestation of "stability."

In the beginning of 2022, the People's Bank of China will achieve policy stability.

　　In 2020, in response to the impact of the epidemic, the central bank created two monetary policy tools that directly reach the real economy, supports financial institutions in deferring the repayment of principal and interest on loans to small and micro enterprises that are experiencing temporary difficulties, and encourages financial institutions to increase credit loans to small and micro enterprises Intensity.

The two direct tools have effectively alleviated the pressure on small and micro enterprises to repay the principal and interest and alleviate the lack of mortgage and financing difficulties for small and micro enterprises.

　　In order to maintain and consolidate support for market entities, and continue to do a good job of financial support to protect market entities in a more sustainable way, the Central Bank has decided to implement inclusive small and micro enterprise loan extension support tools and inclusive small businesses starting from January 1, 2022. The two direct tools of the Micro Enterprise Credit Loan Support Program continued to be converted.

　　Data show that as of the end of November 2021, the balance of inclusive small and micro loans was 18.9 trillion yuan, a year-on-year increase of 26.4%.

In November, the weighted average interest rate of newly issued inclusive small and micro enterprise loans was 4.98%, a decrease of 0.1 percentage point from December 2020.

At the end of November, inclusive small and micro loans supported approximately 43 million small and micro business entities, a year-on-year increase of 35%. Inclusive small and micro loans have achieved an increase in volume, coverage, and price drops.

　　Lian Ping, chief economist and dean of the research institute of Zhixin Investment, said that in 2022, the targeted support function of structural monetary policy will be further actively used.

The Central Economic Work Conference emphasized that “the extension should be postponed, and the extension should be expanded.” In 2022, it will continue to implement relevant support tools for inclusive small and micro enterprises, and use policy tools such as supporting agriculture, supporting small and medium-sized enterprises, and rediscounting. , Intensify support for weak links, key areas, and key regions such as agriculture, rural areas, small and micro enterprises, private enterprises, advanced manufacturing, and provinces with slow credit growth.

Serve the entity with "stability"

　　In 2021, the money supply and the scale of social financing will maintain reasonable growth, and financial support for the real economy will be solid.

New loans in the first 11 months of this year were 18.8 trillion yuan, a year-on-year increase of 438.4 billion yuan.

At the end of November, the growth rates of M2 and social financing scale were 8.5% and 10.1%, which basically matched the nominal economic growth rate.

　　Sun Guofeng, Director of the Monetary Policy Department of the Central Bank of China, stated that the central bank will grasp the three “stabilizations” in 2022 to further enhance the ability of financial services to serve the real economy.

　　Specifically, there are three aspects of work. First, the total amount of money and credit has grown steadily.

Comprehensive use of a variety of monetary policy tools to keep the growth rate of money supply and social financing scale basically matching the growth rate of the nominal economy.

　　Second, the financial structure has been steadily optimized.

Give full play to the dual functions of monetary policy tools in terms of total volume and structure, and make precise efforts to guide financial institutions to increase support for the real economy, especially small and micro enterprises, technological innovation, and green development, and support high-quality economic development.

　　Third, the overall financing cost has been steadily decreasing.

Improve the market-based interest rate formation and transmission mechanism, give full play to the effectiveness of the reform of the loan market quoted interest rate, and promote the steady and moderate decrease in the overall financing cost of enterprises.

　　Lian Ping suggested that this year's prudent monetary policy moderately intensified counter-cyclical adjustments and promoted credit expansion through multiple channels.

Actively innovate the structural application of re-lending and rediscount tools, and leverage their advantages in terms of total volume, price, and structure to support stable economic growth and high-quality development.

　　Cheng Shi, chief economist of ICBC International, stated that China's monetary policy will remain stable and flexible within the normal range to ensure the stability and long-term development of the real economy.

The flexible monetary policy will be "self-centered, stable and stable", maintain "appropriate tightness", keep the benchmark interest rate and the total liquidity gate not loose, prevent inflationary pressure from continuing to strengthen itself, and the RRR cut policy and inclusive financial policy are not tight , Continue to provide effective blood transfusions for small, medium and micro enterprises that are greatly affected by the supply shock.

　　He also specifically mentioned that China will pay more attention to the impact of macro policies on economic operations under a cross-cyclical framework.

Traditional counter-cyclical adjustment mainly focuses on smoothing the fluctuations of the output gap and inflation gap, so as to achieve short-term stability of economic operation. Inter-cyclical adjustment mainly considers the release of medium- and long-term policy space and the maintenance of long-term economic stability. This means that under the framework of inter-cyclical policies, the traditional The macro policy will not be too loose when it is loosened, and it will not be too tight when it is tightened.