China's Central Bank Aims to Stimulate Prices
China’s central bank, the People’s Bank of China (PBOC), is committed to boosting consumer prices in the wake of tepid demand and weakening confidence in the economy. The bank aims to address the persistent contraction of the consumer price index, which dropped by 0.5% on year in November 2021. Despite the removal of strict Covid-19 restrictions, China’s domestic demand has remained lukewarm, prompting the PBOC to take proactive measures to stimulate consumer prices.
The PBOC plans to maintain reasonable levels of liquidity in the financial system and promote price recovery from low levels. It also intends to step up support for affordable housing and property developers to bolster economic growth. The central bank’s commitment to implementing a prudent monetary approach is reflected in its efforts to stimulate consumer prices and expand domestic demand to boost confidence in the economy.
China’s consumer prices fell in November, and producer costs continued to decline, indicating a challenging economic landscape. To address these challenges, the PBOC is planning to step up macroeconomic policy adjustments to support the economy and promote a rebound in prices. It will keep liquidity reasonably ample and guide the reasonable growth of credit. Despite the economy’s recovery, China still faces challenges such as insufficient effective demand and weak social expectations. The government has announced measures to shore up the post-pandemic economic recovery, which is hindered by a property slump, local government debt risks, and slow global growth.
The central bank’s commitment to stimulating consumer prices is underscored by its focus on implementing structural tools over broad easing measures to guide credit toward more targeted areas. The outstanding amount of structural tools reached 7 trillion yuan ($984 billion) by the end of September, reflecting the PBOC’s strategic approach to transition the economy away from debt-fueled growth. Analysts at Sinolink Securities Co. have indicated that the possibility of broad easing has declined in the short term, emphasizing the central bank’s emphasis on targeted measures.
In light of the current economic challenges, the PBOC is cognizant of the need to maintain reasonable levels of liquidity and guide credit growth while implementing a prudent monetary policy. The central bank is expected to continue its efforts to support affordable housing and property developers, indicating a comprehensive approach to addressing the multifaceted challenges facing China’s economy. With China’s economic growth expected to hit the official target of around 5% this year, and Beijing likely to maintain the target next year, the PBOC’s commitment to stimulating consumer prices is poised to play a pivotal role in the country’s economic recovery.