The Governor of the People's Bank of China reiterated the monetary easing stance by mentioning the possibility of an additional cut in the reserve requirement ratio (RRR). This is interpreted as the Chinese government showing its determination to stimulate the economy to achieve the 'around 5%' growth target amid concerns of deflation (falling prices during an economic downturn).

On the 6th, Pan Gongsheng, Governor of the People's Bank of China, said at a joint press conference of Chinese economic ministers held at the Beijing Media Center during the Two Sessions (National People's Congress and Chinese People's Political Consultative Conference), "Currently, the average reserve requirement ratio for banks in our country (China) is 7%, and there is still room to continue lowering it."

[Image source=Reuters Yonhap News]

He explained, "We will continue to promote the stabilization and reduction of comprehensive social financing costs," adding, "Last year, we also lowered interest rates and guided major banks to reduce deposit rates." He further elaborated, "Loans will also help with social financing, cost reduction, investment, and consumption support."

The People's Bank of China lowered the RRR by 0.25 percentage points (p) in April and December 2022, and again in March and September last year. Additionally, on the 5th of last month, just before the Lunar New Year holiday, the RRR was further reduced by 0.5 p. As a result, the weighted average RRR in the Chinese financial sector is approximately 6.9%.

He also mentioned the possibility of lowering benchmark interest rates. On the 20th of last month, the People's Bank of China announced a 0.25 p cut in the loan prime rate (LPR) for a 5-year term, which is the de facto benchmark interest rate applied to mortgage loans, lowering it to an annual rate of 3.95%. Governor Pan said, "As you know, the 5-year loan rate serves as the benchmark for personal mortgage loans and medium- to long-term investment loan rates. This measure will promote the reduction of social financing costs and support investment and consumption." He added, "We consider price stability and recovery as important factors in monetary policy and will continue to promote a gradual reduction in comprehensive social financing costs while taking into account the soundness of bank balance sheets."

He emphasized, "We will place greater focus on improving efficiency in promoting economic restructuring, transformation and upgrading, and the shift from existing to new growth drivers, as well as enhancing the effectiveness of monetary policy."

Regarding the yuan exchange rate, he stated, "We will maintain fundamental stability at a reasonable and balanced level," and self-assessed, "Based on market supply and demand and a series of macroprudential measures, we have maintained the fundamental stability of the yuan exchange rate despite complex circumstances." He also diagnosed, "While major countries' monetary policy stances are expected to reverse this year, our country's economic fundamentals are continuously rebounding and improving, and foreign exchange market participants are becoming more mature."

This content was produced with the assistance of AI translation services.