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China's Monetary Policy to Remain Stable in 2023

China's central bank governor, Yi Gang, has indicated that the monetary policy in the country will remain stable this year. He stated that the economic interest rates are suitable, inflation will be controlled, and currency volatility is not a concern.

Yi Yang, China Central Bank Governor
Yi Yang, China Central Bank Governor

Supporting the Economy with RRR Cuts

In a rare media briefing, Yi emphasized that real interest rates are appropriate and hinted at supporting the economy through cuts to the reserve requirement ratio. This would provide long-term liquidity and ensure price stability, essential for a stable currency.

Optimistic Outlook for China's Economy

China's economy is showing signs of rapid recovery from the impact of the Covid-19 pandemic. Investors closely monitor the central bank's policy stance as the economy accelerates. The recent optimistic outlook for the economy and the central bank's tolerance for higher market interest rates have led economists to lower their expectations for major easing steps, such as interest rate cuts.

PBOC Adjusts Monetary Policy at Appropriate Time

PBOC Deputy Governor Liu Guoqiang stated that the central bank would adjust monetary policy appropriately and not suddenly scale back or roll out large stimulus. He added that inflation is expected to remain mild in 2023, and the overall inflation pressure is manageable.

Surprising Recovery in China's Economy

Manufacturing and services activity, home sales, and traffic congestion in major cities have all rebounded more than expected in February, surprising senior Chinese officials. Economists surveyed by Bloomberg predict that the government will set a growth target of higher than 5% when it releases its economic goals during the National People's Congress on Sunday.

PBOC Press Briefing Highlights

PBOC governor Yi Gang held a rare in-person press briefing, likely his last public event as governor, ahead of the National People's Congress.

Chinese yuan
Chinese yuan

Healthy Property Sector

PBOC officials reiterated their objective for a healthy property sector. They will maintain existing property policies and work towards a new development model for the sector. The PBOC has guided banks to provide normal financing to property developers and has contained the overly fast expansion of the property sector.

Flexible Yuan Exchange Rate Mechanism

Governor Yi emphasized that the yuan exchange rate mechanism has been increasingly flexible and that China should maintain the currency's managed-float system. He noted that while the exchange rate is more volatile, it is fine for businesses or households. The yuan is currently trading close to 7 to the US dollar.

Strengthening Confidence in Consumption and Investment

PBOC Deputy Governor Liu stated that the increase in household bank deposits is due to reduced consumption during the pandemic and low-risk appetite when making investments. As the economy improves, confidence in consumption and investment is expected to strengthen. The PBOC will provide financial services to help expand consumption but will not flood the economy with excessive stimulus.