In the backdrop of a shifting global economy and internal challenges, China’s monetary policy for 2024 has exhibited a notable adaptability, striking a balance between supporting the real economy and managing financial stabilityThe People's Bank of China (PBOC) has demonstrated a proactive stance, implementing two rounds of reserve requirement ratio (RRR) cuts and interest rate reductions throughout the yearThis flexible approach has ensured a strong footing for the real economy, guiding it through prevailing pressures while laying groundwork for the future.

A key feature of 2024’s monetary landscape has been the sustained support for the real economy, underscoring the government’s commitment to reversing economic downturnsAccording to Zou Lan, head of the Monetary Policy Department at the PBOC, despite a generally stable and progressive economic operation, the situation is fraught with challenges

The central bank's monetary policy has, therefore, adopted a supportive position, focusing on counter-cyclical adjustments to facilitate economic recovery.

Specifically, the monetary policy framework for 2024 has been characterized by four distinct attributesFirst, there is an overarching sense of stabilityThe PBOC cut the RRR by a total of one percentage point, injecting about 2 trillion yuan in long-term liquidity into the marketComplemented by open market operations and mid-term lending facilities, these measures ensured sufficient liquidity while also focusing on curbing excessive fund flows that do not serve the real economy.

Second, there was a downward trend in interest ratesThe central bank reduced policy interest rates by 0.3 percentage points on two occasions this yearReports indicated that by November 2024, the weighted average interest rate for newly issued loans to enterprises was as low as 3.45%, and home loan rates fell to 3.08%, both figures indicating an encouraging decline that lifts the financing burden off enterprises and households alike.

The third notable characteristic revolves around optimizing the structure of financial support

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The central bank unveiled initiatives to provide refinancing for technological innovation and upgrades, as well as tools aimed at bolstering the capital marketsThese efforts were aligned with a strategic focus on stabilizing the housing market and confidence in both real estate and capital marketsBy the end of November 2024, outstanding loans to specialized and new enterprises grew by 13.2% year-on-year, underscoring the targeted support for these critical sectors.

Lastly, a balanced approach to both domestic and international financial dynamics was evidentBy maintaining a market-driven exchange rate system, China has worked diligently to stabilize expectations in the foreign exchange market, ensuring that the renminbi remains steady amidst a fluctuating external environmentIncreased measures have been enacted since September 2024 to bolster economic stability, addressing concerns around insufficient demand and weak market sentiments.

As China looks toward 2025, a pivotal shift in monetary policy rhetoric has emerged

For the first time in over a decade, the terminology has transitioned from "prudent monetary policy" to "moderately accommodative monetary policy." This shift illustrates an intentional move toward a more relaxed stance, aimed at facilitating significant support for the real economy as uncertainties linger both domestically and globally.

Experts have noted that this verbal adjustment is not merely semantic but indicative of an essential shift in policy operationsWith external challenges becoming more pronounced, combined with sluggish domestic demand, the necessity for a more supportive monetary environment has become apparentAccording to Dong Ximiao, chief researcher at Zhaolian, this pivot sends a clear, positive signal to the markets, positioning China favorably amid global monetary easing trends.

The anticipated relaxation in monetary policy, while still cautious, is poised to enhance expectations management and bolster investor confidence

As government objectives increasingly prioritize consumption and improved living standards, the PBOC is prepared to implement a variety of monetary tools to maintain liquidity in the economy.

The strategy going forward involves refining the market-rate adjustment mechanisms and enhancing the autonomy of banks in interest rate settingThis approach aims to keep financing costs manageable while supporting growth in consumer spending and investmentsAdditionally, the PBOC emphasizes maintaining a balance in credit growth and liquidity that aligns with economic realities and inflation targets.

In the forthcoming developments, the integration of various monetary policy instruments will be central as the PBOC navigates through the intricacies of domestic and external pressuresThe focus will include selective cuts to the reserve requirement and interest rates, allowing for a responsive approach to liquidity management

By being responsive to changing economic conditions, the PBOC can effectively calibrate monetary policy to meet emergent needs.

Analysts have expressed optimism that 2025 will see further easing measures, particularly as structural policy tools are employed to direct financial support toward key economic sectorsThe commitment to enhancing collaboration within various governmental departments will amplify the efficacy of the "five major articles" initiative aimed at bolstering economic performance across critical sectors.

Ultimately, the flexible monetary policy will play a crucial role in uplifting the macroeconomic landscape in 2025. Industry specialists advocate for robust coordination between monetary policies and fiscal, industrial, and employment strategies to create a cohesive approach that instills confidence among businesses and stimulates effective market demand.