China_ PBOC pledged to intensify monetary easing when appropriate in Q4 report

Summary of the PBOC Q4 Monetary Policy Report Industry Overview - The report pertains to the monetary policy of the People's Bank of China (PBOC) and its implications for the Chinese economy and financial markets [1][2]. Core Points and Arguments 1. Easing Bias Maintained: The PBOC reiterated its "moderately loose" policy stance, emphasizing the need for "counter-cyclical adjustments" in response to economic conditions [2][5]. 2. Focus on Financial Stability: The central bank is prioritizing financial stability over immediate monetary policy easing, indicating a cautious approach to policy adjustments [1][2]. 3. Forecast for Rate Cuts: The forecast includes two 50 basis point (bp) cuts in the reserve requirement ratio (RRR) in Q1 and Q3, and two 20 bp cuts in policy rates in Q2 and Q4 [1][6]. 4. Use of Low-Profile Instruments: There is a risk that the PBOC may rely on less visible tools, such as repo operations, to manage liquidity instead of high-profile measures like RRR cuts [6]. 5. Exchange Rate Management: The PBOC emphasized its commitment to maintaining currency stability, aiming to prevent pro-cyclical market behaviors and risks of exchange rate overshooting [5][6]. 6. Transition to Price-Based Framework: The PBOC is transitioning from a "quantity-based" to a "price-based" monetary policy framework, highlighting the need for coordination between fiscal and structural monetary policies [6][5]. 7. Interest Rate Policy: The central bank aims to lower financing costs for households and corporates, with effective lending rates continuing to decline [6][8]. Additional Important Content - Deflationary Pressures: Persistent deflationary pressures in China necessitate high-profile monetary policy easing, despite potential constraints from financial stability concerns [6]. - Outstanding Relending Programs: By the end of 2024, the outstanding amount of relending programs decreased to RMB 6.3 trillion from RMB 6.7 trillion in Q3 2024, indicating a tightening of credit expansion measures [6]. - Government Bond Issuance: The issuance of government bonds for bank recapitalization is expected to alleviate constraints on monetary policy easing due to banks' declining profitability [6]. This summary encapsulates the key insights from the PBOC's Q4 monetary policy report, reflecting the central bank's cautious approach amid economic uncertainties and its commitment to maintaining financial stability while navigating deflationary pressures.