On March 29, the Monetary Policy Committee of the People’s Bank of China (PBOC) held the first quarterly meeting of 2024 (its 104th meeting) in Beijing.
The meeting analyzed the economic and financial developments both at home and abroad. It was noted at the meeting that since the beginning of 2024, the PBOC has sought progress while giving top priority to the stability of macro policies, pursued a prudent monetary policy that is flexible, moderate, precise, and effective, strengthened the counter-cyclical adjustments, and used a mix of policy tools, such as interest rates, the required reserve ratio (RRR) and central bank lending, thereby providing support for the real economy, effectively forestalling financial risks, and creating a sound monetary and financial environment for economic recovery. The PBOC has achieved remarkable results in the loan prime rate (LPR) reform, and it has given full play to the role of the mechanism for market-oriented adjustments of deposit rates. The monetary policy transmission has become more efficient, and the financing costs for the real economy have continued to decline. Supply and demand in the foreign exchange market have been basically in equilibrium, current account surplus has remained stable, and foreign exchange reserves have been adequate. The RMB exchange rate has moved in both directions with stabilizing expectations and remained basically stable at a reasonable and balanced level, serving as a stabilizer for the macro economy.
It was pointed out at the meeting that the external environment is becoming increasingly complex and severe as the world economic growth is sluggish, inflation is expected to fall from a high level but is still sticky, and interest rates remain elevated in developed countries. China’s economy has witnessed an on-going recovery and improvement and solid progress in high-quality development, but it still faces challenges such as insufficient effective demand and weak social expectations. Upholding the general principle of pursuing progress while ensuring stability, promoting stability based on progress, and establishing the new before abolishing the old, the PBOC will maintain a good momentum of stable and sound economic growth. It will implement a prudent monetary policy in a precise and effective manner, strengthen counter-cyclical adjustments, and give full play to the role of monetary policy instruments in adjusting both the aggregate and the structure. In addition, it will focus on expanding domestic demand and boosting confidence so as to promote the virtuous circle of the economy.
It was held at the meeting that the implementation of the existing monetary policies should be strengthened. The PBOC will keep reasonable and sufficient liquidity level, guide reasonable growth and well-paced supply of credit, and ensure that the aggregate financing to the real economy (AFRE) and the money supply are in line with the economic growth and the expected price level. Prices will see a moderate recovery and remain at a reasonable level. The PBOC will improve the market-oriented interest rate formation and transmission mechanism, enrich the monetary policy toolbox, give play to the guiding role of the central bank policy rates, unleash the benefits of the LPR reform and the mechanism for market-oriented adjustments of deposit rates, and help stabilize and bring down the financing costs for businesses and the credit costs for residents. At the same time, the PBOC should pay attention to changes in long-term yields while focusing on the economic recovery. It will smooth the transmission mechanism of the monetary policy to improve the efficiency of capital utilization. Moreover, it will deepen the market-oriented reform of exchange rates, guide enterprises and financial institutions to remain risk neutral, and implement a mix of policy measures to rectify deviations and stabilize expectations. It will resolutely correct pro-cyclical behaviors and guard against the risk of exchange rate overshooting so as to prevent the formation and self-reinforcement of one-sided and unanimous expectations and to keep the RMB exchange rate basically stable at a reasonable and balanced level.
It was noted at the meeting that the supply-side structural reform of the financial sector should be deepened to build the system and mechanism needed to provide effective financial support for the real economy. The PBOC will guide large-sized banks to play their leading role in providing financial services for the real economy, encourage small and medium-sized banks to focus on their main duties and major businesses, and support banks in capital replenishment. In doing so, the financial sector will work together to safeguard the stability of the financial market. The PBOC will make significant efforts in the areas of technology finance, green finance, inclusive finance, pension finance, and digital finance, and continue to intensify support for major national strategies, key fields, and weak links, so as to speed up the development of new quality productive forces. The PBOC will appropriately increase the quota for central bank lending to support rural development and micro and small businesses (MSBs) as well as central bank discounts, make good use of the carbon emission reduction facility (CERF), and launch central bank lending for sci-tech innovation and technological upgrading. It will also step up financial support for large-scale equipment renewal and trade-in of consumer goods. The PBOC has adopted a mix of policies to support coordinated regional development. It will put efforts into implementing the Action Plan for Stepping up Support for the Financing of Sci-tech Enterprises, and guide financial institutions to issue more medium and long-term (MLT) loans to the manufacturing sector based on market demands, so as to expedite the building of a modern industrial system. It will work unswervingly to consolidate and develop the public sector and to encourage, support and guide the development of the non-public sector, and provide better financial services for the development and growth of the private economy. In addition, the PBOC will ensure the implementation of the city-specific housing credit policy to meet the rigid demand for housing and the needs to improve living conditions, and to meet the reasonable financing needs of real estate companies regardless of their ownership types, thus promoting the stable and healthy development of the real estate market. It will increase financial support for the “market + guarantee” housing supply system, focusing on building a new development model for the real estate sector. Work will be done to implement financial policy measures to promote the healthy development of the platform economy. The PBOC will effectively advance the high-level two-way opening-up of the financial sector, and enhance the capacity for economic and financial oversight as well as risk management in an open economy.
It was stressed at the meeting that under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the PBOC will fully implement the guidelines of the 20th National Congress of the Communist Party of China (CPC), the Central Economic Work Conference, the Central Financial Work Conference and the “two sessions”, as well as the decisions and arrangements made by the CPC Central Committee and the State Council. Upholding the general principle of pursuing progress while ensuring stability, the PBOC will firmly pursue high-quality development as a top priority, follow the Chinese’s path to modernization, apply the new development philosophy fully, faithfully and comprehensively, and speed up building a new development paradigm. It will pursue the strategy of expanding domestic demand while deepening supply-side structural reform, strengthen policy coordination across authorities, give full play to the role of monetary and credit policies, and properly balance internal and external equilibria. It will resolutely enhance economic vitality, forestall and defuse risks, and improve social expectations, thus reinforcing the momentum of economic recovery and effectively upgrading and appropriately expanding the economic output.
The meeting was chaired by Pan Gongsheng, Governor of the PBOC and Chairman of the Monetary Policy Committee. Members of the Monetary Policy Committee, including Li Chunlin, Liao Min, Zhang Qingsong, Xuan Changneng, Li Yunze, Kang Yi, Zhu Hexin, Tian Guoli, Wang Yiming, Huang Yiping and Huang Haizhou, attended the meeting. Xu Shouben and Wu Qing took a leave of absence for official businesses. Attendees also included officials from the PBOC Tianjin Municipal Branch, Jiangsu Provincial Branch, Jiangxi Provincial Branch and Xinjiang Uygur Autonomous Region Branch.
