According to state-owned media, a former central banker predicts that China will likely implement a proactive fiscal policy next year to maintain stable economic growth for the world’s second-biggest economy. The economy has been struggling to regain momentum after prolonged pandemic-related restrictions, and concerns have arisen about potential debt issues among major property developers affecting other sectors.
Sheng Songcheng, a former statistics and analysis director of the People’s Bank of China, expects China to continue its positive fiscal policy next year, along with monetary policies that align with it. He also anticipates a significant policy space to reduce the reserve requirement ratio (RRR).
With interest rates and loan prime rates already low, Sheng suggests that there is greater potential to decrease banks’ RRR than to further cut interest rates. The central bank previously lowered the RRR in September to boost liquidity and support economic recovery, with analysts predicting another cut by the end of the year. The weighted average RRR for financial institutions currently stands at around 7.4% after the cut.
Sheng emphasized that China is cautious about reducing interest rates, considering the need to maintain internal and external balance in its monetary policy. He also anticipated a stabilizing interest rate differential between China and the U.S., likely resulting in a mild appreciation trend for the yuan, albeit with limitations.
(Reporting by Mei Mei Chu; Editing by Christopher Cushing)
