PBOC shifts policy focus to 'resilience'

Cross-cyclical framework considered a help in dealing with long-term issues

The People's Bank of China will likely shift its policy focus to long-term economic resilience from short-term pressures, as the central bank seeks to navigate the economy through protracted challenges, experts said on Friday.

The comments came on the heels of the second-quarter monetary policy report released by the PBOC on Thursday, in which it has replaced the words strengthening "countercyclical" adjustment in the first-quarter report with improving "cross-cyclical" policy design when it comes to future policy direction.

Unlike countercyclical measures that smoothen the ups and downs within a business cycle, a cross-cyclical policy framework focuses on dealing with longer-term issues faced by the economy that extend into several cycles, they said.

"To achieve a long-term balance between growth stabilization and risk prevention, the PBOC will improve cross-cyclical policy design and adjustment while coordinating the goals of stabilizing growth, safeguarding employment, adjusting economic structure, preventing risks and controlling inflation," the report said.

The policy orientation to long-term goals comes as economic challenges have increased and are set to remain for a long time, said the report. External instabilities have intensified as the global economy is mired in a deep recession and the COVID-19 pandemic is yet to run its full course, even as geopolitical tensions are rising. Structural and institutional problems still linger in the domestic economy, it said.

Song Xuetao, chief macroeconomic analyst with TF Securities, said the cross-border monetary policy framework will help China overcome the mid-to long-term challenges as it will help preserve policy space and rectify structural problems such as property bubbles and implicit debt.

"The room for conventional monetary policy still exists in China, but has narrowed. The central bank should set aside some policy space to deal with medium-and long-term issues," Song said.

The macro leverage ratio has risen as monetary policy eased in the first half to counter the epidemic impact, the PBOC said. It also highlighted the drawbacks in adopting very low interest rates, and pledged more targeted efforts to help ailing small businesses and steer the monetary policy toward economic restructuring.

Given the policy orientation to long-term economic resilience, experts said the PBOC will focus more on supporting real-economy businesses via targeted policy tools in the coming months, while becoming more prudent in terms of furthering broad-based stimulus.

Lu Ting, chief China economist with Nomura Securities, said that it may be too early for China to roll back the easing and stimulus measures it introduced in the first half, but the country may be reluctant to roll out fresh stimulus measures in the second half.

"The easiest monetary policy is likely behind us, but the room for interest rate increases might also be limited," said Maggie Wei, an analyst with Goldman Sachs (Asia), adding that the PBOC has emphasized precise and targeted measures in the new report.

According to the PBOC, monetary policy has achieved solid results in supporting the real economy this year as targeted efforts strengthened, with the implementation of central bank re-lending and rediscount and the launch of two new policy tools to support small businesses in getting loans or arranging deferrals in loan repayment. The weighted-average interest rate of the loans granted to businesses in June came in at 4.64 percent, down by 0.48 percentage point from last December, official data showed.