On May 10, the People's Bank of China released the "China Monetary Policy Implementation Report for the First Quarter of 2020" (hereinafter referred to as the "Report").
Regarding the issues and trends worthy of attention, the report pointed out that, first, the new coronary pneumonia epidemic is spreading rapidly, and the global economy has suffered from bilateral supply and demand shocks, and it has slipped into a recession in the short term. From the perspective of supply, the epidemic has covered most important nodes of the global value chain, resulting in stagnation of production and disruption of the industrial chain. From the perspective of demand, the epidemic directly led to a decline in the income of residents and businesses. Fear and uncertainty about the epidemic further dampened market confidence, and consumption and investment shrank. Second, the trend of the epidemic is unclear, the response of various countries is uneven, and the global economy is facing great uncertainty. Although various countries have introduced a series of positive measures to combat the epidemic, there are differences in policy strength and implementation effects. In the current lack of strong international coordination, the epidemic may recur globally, which may trigger multiple economic and social operations. " "Pause" and "Restart". Third, accelerating the accumulation of local financial risks deserves vigilance. Under the impact of the epidemic, the real economy of various countries is experiencing difficulties, and the credit risk and market risk of the corporate sector and financial institutions are accumulating. If some countries are unresponsive and improperly responded, they may cause financial risks to overlap with the real economic risks. Fourth, the macro policy space of the world's major economies has been further compressed. The policy interest rates of major global central banks are basically near zero, and the European Central Bank and the Bank of Japan have already entered negative ranges.
Further reading
The central bank disclosed the focus of the next stage of work, steady growth is the first
The People ’s Bank of China issued a report on the implementation of the monetary policy for the first quarter of 2020 on Sunday, stating that in the next phase, a stable monetary policy should be more flexible and appropriate. According to the epidemic prevention and control and the staged changes in the economic situation, grasp the policy strength, focus and pace To handle the relationship between steady growth, job security, structural adjustment, risk prevention, and inflation control.
Compared with the previous quarter's report, the central bank's judgment on the domestic and foreign economic environment has changed significantly in this report. Among them, the judgment of the world economy has changed from "sustained slowdown in growth" to "increased recession risk", and this has also increased the challenges facing our domestic economy.
The central bank pointed out that the new coronary pneumonia epidemic has brought an unprecedented impact on China's economy and society, and the relevant losses have been reflected in the first quarter GDP. Although the domestic economy has improved since March, the risks of external imports are still present. In particular, the situation of obstructed international trade is difficult to improve in the short term, and external demand may continue to decline, further reducing economic growth.
"The difficulties, risks and uncertainties must be fully estimated and the sense of urgency must be strengthened," the central bank said.
As a result, the tone of monetary policy has further tilted towards steady growth. Regarding the monetary policy objectives, the central bank added the expression “giving more attention to economic growth and employment and other objectives, and hedging the impact of the epidemic with greater policy intensity” on the basis of “seeking dynamic balance among multiple objectives”.
In response to the economic and financial situation at home and abroad, the Central Bank put forward seven key tasks for the next phase of work:
——Strengthen the counter-cyclical adjustment of monetary policy and support the real economy, especially small and medium-sized enterprises, to overcome difficulties. The strength of counter-cyclical adjustment is further clearly defined as "increasing" from "scientific and steady grasp". At the same time, the growth target of M2 (broad money) and social financing scale has been refined from the previous period "fitting with economic development" to "basically matching the nominal GDP growth rate and slightly higher."
——Giving full play to the leading role of the re-loan and discount policy, providing accurate financial services for epidemic prevention and control, resumption of production and real economy development. The central bank specifically pointed out that it is necessary to continue to expand credit support for agriculture-related, small and micro enterprises, private enterprises, foreign trade, and industries heavily affected by the epidemic, and guide the reduction of social financing costs.
—— Give play to the role of monetary and credit policies to promote economic restructuring and better serve the real economy. Compared with the past, the central bank has placed more emphasis on establishing and improving long-term effective mechanisms, such as accelerating the introduction of assessment methods for commercial banks to serve rural revitalization; developing supply chain finance, and relying on core corporate credit to increase financing support for small, medium and micro enterprises. At the same time, the central bank reiterated that it is necessary to insist on the positioning of the house "used to live, not used for speculation" and "not to use real estate as a short-term stimulus to the economy" requirements, and to maintain the continuity, consistency and stability of real estate financial policies.
-Further deepening the marketization of interest rates and the reform of the RMB exchange rate formation mechanism. The central bank said that the progress of converting financial institution stock enterprise loan interest rates into market quoted interest rate (LPR) will be included in macro-prudential (MPA) and qualified prudential assessments, and the conversion is expected to be basically completed by the end of August.
——Improve the financial market system. The central bank first proposed "strengthening the construction of a financial bond management system and establishing a hierarchical and classified storage issuance management system", and further expressed its support for its "equity financing" on the basis of early support for private companies to issue bond financing.
-Deepen structural reforms on the financial supply side.
——Continue to prevent and resolve major financial risks, ensure the overall controllability and continuous convergence of risks, firmly adhere to the bottom line of no systemic risks, and ensure that the goals and objectives of the Party Central Committee ’s decision-making and deployment of risks are completed as scheduled and comprehensive for 2020 To build a well-off society and create a good financial environment.
In addition, the central bank also pointed out the four major risks that need to be paid attention to in the future.
The first is that the duration and negative impact of the global epidemic may exceed expectations. "The epidemic situation in developed countries in Europe and the United States is still serious, and the effect of efforts to restart the economy needs to be observed. The number of newly diagnosed diagnoses in some developing economies and agricultural product exporting countries has increased rapidly, and the future trend of the global epidemic situation is highly uncertain."
Secondly, the effects and spillover effects of highly accommodating unconventional monetary and fiscal policies in major economies need to be closely monitored. The central bank pointed out that monetary and fiscal policies can only hedge against the negative impact of the epidemic. The future global economic recovery will still depend on the progress of epidemic prevention and control. The negative effects of unconventional policies will gradually appear.
Third, the domestic economy still faces many challenges. "Enterprises, especially small and medium-sized enterprises, have been greatly affected by the epidemic. The pressure on residents' employment and social security is rising. The coordination of the industrial chain's resumption of production and production needs to be strengthened. The supply and stable prices of major agricultural and sideline products need to be continuously consolidated."
Fourth, there are also uncertainties in China's balance of payments and cross-border capital flows. On the one hand, the central bank of major economies has greatly loosened monetary policy, coupled with China's leading epidemic prevention and control and resumption of production and production, leading to higher returns of RMB assets and relative security may attract cross-border capital inflows. On the other hand, the continued weakening of external demand and the decline in investor risk appetite may also cause a decrease in exports and cross-border capital outflows.
