Monetary policy tool adjustments to invigorate and stabilize market

The top authorities said recently that China must make more macro policy adjustments to stabilize the economy, strive to achieve this year's economic and social development targets, and keep the economy operating within a reasonable range.

It is particularly important to make good use of various monetary policy tools to increase support for the real economy. Despite a steady development momentum over the past months, the risks and challenges for China's economy are increasing because of the COVID-19 pandemic and the Ukraine crisis.

China must not only strengthen confidence but also take active countermeasures. Its monetary policy should further increase support for the real economy, especially for the industries, micro, small and medium-sized enterprises, and individual businesses that have been severely affected by the pandemic, and reduce their financing costs to invigorate the market and stabilize the overall macroeconomic market.

More efforts should first be made to accelerate the implementation of the policies already adopted. The financial authorities recently cut the reserve requirement ratio, to not only provide total financial support but also provide targeted policy arrangements for key areas, weak links, and specific industries and enterprises affected by the pandemic. Next, the financial system needs to build consensus and local governments need to promote better implementation of these policies.

China currently has ample space for monetary policy adjustments and an abundant reserve of incremental macro policy tools. These ensure the country has the confidence and ability to support its macro economy to continue operating within a reasonable range. After the release of 530 billion yuan ($80 billion) of low-cost funds by the recent RRR cut, China's central bank has again created a 200 billion yuan new re-loan for science and technology innovation, which will boost the innovation and development of enterprises. Next, the country should make better use of monetary policies to make them more precise and targeted, to increase the use efficiency of funds and channel more credit resources to key areas and weak links that are in greater need.

The current overlapping of cyclical and structural factors and intertwining of short-term and long-term problems have raised higher demands for China to formulate and implement macro policies. This means that any policy should be forward-looking and timely adjustments are needed if necessary. Also, China should continue to pay close attention to monetary policy adjustments in the major developed economies.