The People's Bank of China announced that it would continue imposing counter-cyclical adjustments. These would aid economic recovery and make monetary policies more responsive to the country's needs. These policies were said to be more flexible and would mitigate the financial risks of Chinese entities.
Last Sunday, China's central bank announced that it would continue supporting the country's economy by imposing more counter-cyclical adjustments. The first-quarter monetary policy implementation report it released showed that the bank did not continue refraining from 'flood-like' stimulus to support economic growth. Instead, the report claimed that it would impose more policy measures.
According to the report, China's long-term stable economic trend remained unchanged despite the pandemic. However, at present, challenges continue to surface and threaten China's economic development. Hence, the People's Bank of China vowed to fully consider these difficulties by mitigating the associated risks through monetary policies.
The bank also said that it would prioritize the liquidation by using both aggregate and structural policy measures. It would also continue to deepen interest rate reforms to aid in mitigating borrowing costs and allocate financial resources more efficiently. Furthermore, the bank would also continue its support for the real economy and assist small and medium-sized enterprises.
It would adequately handle the relationship between stabilizing growth, promoting employment, adjusting structure, and controlling inflation at the same time.
At present, China's economy contracted by 6.8 percent during the first quarter compared to the same period from 2019. It was the first time that the Chinese economy shrunk since 1992. The pandemic has paralyzed production and spending in the country, thereby raising pressure on authorities to prevent further unemployment.
The PBOC already imposed economic easement measures since February. These included cuts in reserve requirements and lending rates. It also targeted lending support for pandemic-hit entities. The bank promises to continue the reform of the prime loan rate (LPR) regime. This requires the improvement of monetary policy transmission mechanisms in further lowering borrowing costs.
Last August 2019, the PBOC overhauled the benchmark lending rate (BLR) mechanism by using market-driven LPR. This replaced the previous benchmark for the BLR. The bank would maintain the growth of M2 and social financing to influence a slightly higher than standard nominal gross domestic product (GDP) growth.
The foreign exchange market reform would also be improved. This would allow the yuan currency to be more flexible and keep it stable. Furthermore, China would also develop its financial market to promote growth and economic restructuring.