Chinese Leaders to Maintain Prudent Monetary Policy in 2015

China’s leaders will keep growth on track next year by applying a prudent monetary stance with a balance between loosening and tightening, according to a statement from a key economic meeting that ended yesterday.

While China faces challenges to arrest a slowdown, growth is showing resilience and potential, giving the government plenty of room to maneuver, the official Xinhua News Agency said in a summary of the policy-setting Central Economic Work Conference yesterday. As in past years, Xinhua didn’t announce detailed growth targets for next year.

The Xinhua statement emphasized that China’s economy is adjusting to a “new normal” of slower growth -- a phrase President Xi Jinping has used several times recently that reflects the leadership’s push to wean the economy from its dependence on infrastructure investment and exports. The government cut interest rates in November as China heads for its slowest annual expansion since 1990.

China will keep consistency and stability in macro economic policy and stick to a proactive fiscal stance, Xinhua reported. China has said since 2008 that it’s implementing a “proactive” fiscal policy and started saying in 2010 that it’s following a “prudent” monetary policy.

The country’s monetary policy will pay more attention to an appropriate balance between tightening and loosening, according to the news agency. That language sends out an easing signal, said Hu Yifan, chief economist at Haitong International Securities Group Ltd. in Hong Kong.

Hu said that China never says the monetary policy is “loose,” while the central bank has proved that it is willing to inject liquidity to the system to delay risk breakouts in the financial system.

Financial Stability

“This sentence is basically saying that ‘we’ll try the best we can, do whatever we can, to maintain the financial system’s stability,’” she said.

The People’s Bank of China injected 400 billion yuan ($65 billion) into the banking system, according to a person familiar with the matter, pressing ahead with targeted steps to add liquidity as the economy slows. Policy makers are seeking to balance stimulus with policies aimed at structural change.

The country has accomplished the main goals of this year “relatively well” and kept the economy’s operation in a reasonable range, Xinhua reported.

China’s factory-gate deflation extended to a record 33 months, while headline consumer prices rose at the slowest pace since 2009 last month, providing scope for the central bank to do more to buttress demand, including a cut in banks’ required reserve ratios.

Lending Rates

The People’s Bank of China last month lowered lending and saving rates and increased the ceiling for deposit rates. After the Nov. 21 announcement, it said the move didn’t represent a shift in its policy stance as the basic tone remains prudent.

The one-year lending rate will be 5.35 percent in the second quarter of 2015 and the one-year deposit rate will be 2.5 percent, according to the median forecast of economists surveyed by Bloomberg.

The injection to the country’s banks began on Dec. 10 via China Development Bank Corp., according to the person, who asked not to be identified because the news isn’t public. The Wall Street Journal reported the injection earlier, and the PBOC didn’t respond to a faxed request for comment yesterday.

The move comes as a previous PBOC injection of 500 billion yuan comes due this month. The PBOC had said it pumped that amount into the economy in September with a term of three months and a rate of 3.5 percent. Another 269.5 billion was added in October with the same terms, it said.

— With assistance by Xin Zhou, and Xiaoqing Pi

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