BEIJING (Reuters) - China’s monetary policy stance has not shifted, but a greater focus will be placed on flexible policymaking to adjust to changes, a central bank official said, with the Chinese economy widely expected to face more headwinds next year.
China’s economy has slowed in the course of 2018 as it undergoes painful structural adjustments in a transition to a more gradual but sustainable growth trajectory. A trade war with the United States has also heaped uncertainty on China’s near-term economic outlook.
To spur lending, particularly to small firms, the People’s Bank of China (PBOC) has cut the amount of cash that commercial lenders are required to set aside as reserves four times this year.
The PBOC has said it will continue to implement a “prudent and neutral” monetary policy to ensure reasonably ample liquidity, and that it will not resort to massive stimulus.
But recent omissions of the word “neutral” in official statements have sparked some debate in the markets over the PBOC’s policy stance as the economy showed more signs of slowing.
“The stance of monetary policy is still prudent - this has not changed, but we will be more focused on not making it too loose or too tight,” said Sun Guofeng, head of the PBOC’s monetary policy department.
“That means we must make monetary policy more forward-looking, flexible and targeted in response to changes,” Sun told Reuters when asked about the PBOC’s current policy stance.
At a key government economic work conference last week, the wording in the official readout was changed to “prudent monetary policy should be appropriately tight and appropriately loose, liquidity should be kept ample and the monetary transmission mechanism should be improved.”
Last year, the government said “prudent monetary policy should be kept neutral and the floodgates of money supply should be controlled,” when describing its policy.
On Thursday, in a statement following a quarterly meeting of its monetary policy committee, the PBOC also excluded the previously-used “neutral” to describe Chinese policy.
China’s move to drop the “neutral” description at the economic conference signals adjustments in policy measures but the changes will be marginal, a PBOC newspaper said earlier on Friday.
While China’s “prudent” policy stance has not changed, the tweaks are a response to domestic and overseas conditions such as tough domestic regulations and more pronounced conflicts in international economic and financial areas, the Financial News reported.
“From ‘staying neutral’ to ‘appropriately tight and appropriately loose’, it is in accordance with the need of new economic development and also is a process of dynamic optimisation of monetary policy,” Financial News said.
However, the newspaper said the tone of policy language remains broadly consistent with the overall direction of recent monetary policy.
The PBOC previously outlined five monetary policy stances, ranging from “loose” to “tight”. China adopted an “appropriately loose” monetary policy after the 2008 global crisis, before switching to “prudent”, the middle setting, in late 2010. The wording was modified to “prudent and neutral” in late 2016 as China launched a crackdown on corporate debt and financial risks.
Reporting by Ryan Woo and Stella Qiu; Additional writing by Yawen Chen; Editing by Sam Holmes and Toby Chopra