Possible macro moves set to spur growth

Resolving contagion-related demand slump, sluggish property sector key

Expectations of accommodative monetary policy have grown as an official signaled that monetary policy is willing to lend stronger support next year than this year for the economy, experts said on Monday.

They said the Chinese economy is still in need of lower interest rates and other countercyclical measures to accommodate a revival in consumption and investment amid COVID-19 pressure and help the real estate sector recoup some momentum.

"It is sensible to ramp up support as soon as possible when it comes to adjustments in policy interest rate benchmarks," said Zhang Bin, deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

Next year's magnitude of rate cuts should be stronger than this year's to boost consumption and investment while addressing the weakness of the property sector, Zhang said, adding that it is also advisable to subsidize low-income residents' homebuying activities by providing interest rate discounts.

He said that strengthening monetary support is a necessity because merely relying on the economy's endogenous momentum of recovery might not bring growth back to a level on par with the country's potential growth rate, given the COVID-related damage to market players' financial condition and risk appetite.

Lowering interest rates by a proper degree can reduce consumers' and businesses' debt burdens, increase prices of assets they hold and therefore boost their cash available for spending, he said.

Zhang's views echo remarks made by Liu Guoqiang, vice-governor of the People's Bank of China, the country's central bank, over the weekend. Liu said at a forum that the strength of next year's monetary policy, on the aggregate front, should not be smaller than this year's and should be further increased if needed, unless economic growth and inflation exceed expectations.

Aiming to provide "adequate" aggregate support for the real economy in 2023, Liu said the PBOC has relatively abundant policy tools at hand, with room left in both quantitative and pricing instruments.

Since the beginning of the year, the PBOC has cut the interest rate of the medium-term lending facility operation — a key policy benchmark — by 20 basis points in total to 2.75 percent till Thursday.

Liu's remarks may have implied that MLF rate cuts in 2023 may be no lower than 20 basis points, a Guosheng Securities report said on Monday, adding that financial market liquidity is unlikely to see a tightening trend as the PBOC remains committed to keeping liquidity reasonably ample.

At the Central Economic Work Conference, which concluded on Friday, it was highlighted that reasonable and sufficient liquidity should be maintained as part of "targeted and effective" prudent monetary policy.

Yet some experts are cautious about the possibility of interest rate cuts. They cited the unfolding economic rebound, accompanied by the potential rise in inflation, as the main reasons that may dissuade the PBOC from adding stimulus.

"Given the backdrop of a significant rebound in economic growth, it is unlikely to see interest rate cuts and reductions in banks' required reserves in 2023," said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International.

While the MLF rate may stay unchanged, the over-five-year loan prime rate — a market-driven benchmark for mortgage rates — might decrease further to reduce homebuying costs and stabilize the real estate sector, Wang said.

China is scheduled to unveil the latest one-year and over-five-year LPRs on Tuesday. The over-five-year LPR, according to some experts, might drop as early as Tuesday, after registering a slip of 35 basis points in total so far this year to 4.3 percent.