Economic Watch: China’s monetary policy to prioritize stability in 2021

BEIJING, Jan. 8 (Xinhua) — China will prioritize stability in its monetary policy in 2021, said Yi Gang, governor of the People’s Bank of China.

China will use a comprehensive range of monetary policy tools, maintain liquidity at a reasonably ample level, and ensure that the growth of broad money supply and social financing basically matches nominal economic growth, Yi told Xinhua in an interview.

The country will provide more financial support to small and micro-sized businesses, technological innovation and green development, Yi added.

When asked about the exit from the extraordinary measures adopted last year to revive the economy, Yi said China did not adopt zero or negative interest rates, nor did it implement quantitative easing.

As one of the few major economies that implemented normal monetary policies, China stayed away from using a deluge of stimulus policies, he added.

Therefore, the exit from extraordinary measures will have a small impact on the country’s economy this year, Yi said.

Yi said the financial system will step up efforts to effectively support the real economy.

Commercial banks will be encouraged to expand loans for agriculture, rural areas and farmers, as well as small and micro-sized businesses and the manufacturing sector, he added.

China will keep its macroeconomic policies consistent, stable and sustainable in 2021, with a prudent monetary policy that is flexible, precise, reasonable and moderate, according to the tone-setting Central Economic Work Conference that took place in December 2020.

The meeting stressed that banks’ capital should be replenished through multiple channels.

Shedding light on China’s efforts to strike a balance between economic recovery and risk prevention, Yi said the country will keep its macro leverage ratio basically stable in 2021.

The COVID-19 blow to the Chinese economy led to a hike in the ratio of the country’s total liabilities to its GDP last year, the governor said.

As the pace of growth in the ratio has slowed since the third quarter of 2020, it is estimated that the ratio will get back in the zone of basic stability, Yi said.

Accordingly, the central bank needs to unveil measures to prevent the accumulation of financial risks while supporting the real economy, said the governor, calling for appropriate handling of risks related to individual financial institutions and key fields.

More efforts should be made to bolster the regulatory system for the financial sectors, and ensure the risks are addressed in compliance with laws and regulations, Yi said.

The central bank should also seek new approaches to replenish the capital for small and medium-sized banks, and intensify crackdown on illegal behaviors, he added.

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