On November 16, 2019, the People’s Bank of China (PBC), China’s central bank, formally released the China Monetary Policy Report Quarter Three 2019, giving new judgments on the current monetary policy circumstances. Compared with the Report Quarter Two, the Report Quarter Three has some different expressions which are possibly predicting the trend of the central bank’s future monetary policy.

First, the importance of maintaining stable growth is highlighted. In the Report Quarter Three, the most remarkable change is the highlighting on maintaining stable growth. The words of “timely and proper counter-cyclical adjustments” in the Report Quarter Two are changed as “strengthened counter-cyclical adjustments” in the Report Quarter Three. And in the Report Quarter Three, it is straightforward expressed that “due to the increasing economic downward pressure, some enterprises have seen a great many operation difficulties” and that “the short-term economic downward pressure should be coped with appropriately”.

Second, deleting the expression of “maintaining good control of aggregate money supply” does not mean an easing monetary policy. Another remarkable change in the Report Quarter Three is that the expression, “maintaining good control of aggregate money supply”, which is always mentioned in the previous two quarterly reports, has been deleted. In terms of such change, some people hold that the central bank has opened the easing room for the monetary policy. This view is yet to be verified. On one hand, the PBC still emphasizes its firmness in “refraining from providing massive and indiscriminate liquidity”, indicating that the monetary policy is not likely to be further eased; on the other hand, judging from the wording of the previous monetary policy reports, the adoption or deletion of the expression “maintaining good control of aggregate money supply” cannot serve as the evidence for an easing or tightening monetary policy.  

Third, the trend of persistent inflation or deflation is denied but the upward pressure on CPI is admitted. A special column in the Report Quarter Three systematically expounds the central bank’s views on the current inflation environment. In summary, the PBC believes that China has no foundation for persistent inflation or deflation, CPI is expected to fall gradually in the second half of next year, and the year-on-year growth of PPI which has declined mainly because of base effect will gradually go up again along with the improvement of its month-on-month growth.

Fourth, how to understand the phenomenon that the general loan interest rates rose rather than fell? Another detail that deserves attention in the Report Quarter Three is that the weighted average interest rate of general loans in the third quarter was 5.96%, up by 0.02% from the end of the second quarter. In the third quarter, under the LPR reform launched to facilitate the construction of interest rate transmission mechanism, the weighted average interest rate of general loans actually rose rather than fell, which is worth pondering. On one hand, it reflects that the high costs of general loans have significantly constrained the further lowering of the loan rates; on the other hand, it also shows that in the context of increasing economic downward pressure, there is a lack of impetus for banks to lower the risk premiums.

In the future, the central bank tends to maintain a prudent and easing monetary policy in a timely and appropriate manner. For the next stage, the focus of policy adjustment is still on targeted regulation, so as to more precisely support the real economy through money supply, relieve the localized inflationary pressure, and better facilitate the stable and long-term development of China’s economy.

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