Yi Gang: cherish and make good use of normal monetary policy space



On green finance, monetary policy and risk prevention, we should welcome the regulatory heavyweight again. On March 21, according to the official website of the people’s Bank of China, Yi Gang, governor of the people’s Bank of China, said in a speech at the round table meeting of the China development high level forum that China’s monetary policy is in a normal range and has room to provide liquidity and appropriate interest rates. We should pay attention to both the total amount and the structure, and strengthen targeted support for key areas and weak links. However, in line with the previous keynote, Yi Gang once again reiterated that in order to curb the breeding and accumulation of financial risks, monetary policy needs to balance supporting economic growth and preventing risks.


易纲:珍惜和用好正常的货币政策空间

Always in the normal range

“China’s monetary policy has always been in a normal range, with adequate instruments and moderate interest rates. We have more room for monetary policy regulation. ” In his speech, Yi Gang first set the latest trend of monetary policy, that is, we need to cherish and make good use of the normal monetary policy space to maintain the continuity, stability and sustainability of the policy.

According to the data, the year-on-year growth rate of broad money (M2) is about 10%, which basically matches the growth rate of nominal GDP. The yield of 10-year Treasury bonds is about 3.2%, and the open market 7-day reverse repo rate is 2.2%. In 2020, the consumer price index (CPI) rose by 2.5% year on year.

Yi Gang pointed out that from a number of figures, it can be seen that China’s monetary policy is in a normal range and has room to provide liquidity and an appropriate interest rate level.

In fact, the characteristics of the open market operation of the central bank after the opening of the new year can also confirm the continuity, stability and sustainability of the current monetary policy. Beijing Business Daily reporter noted that whether it is the latest March “parity equivalent” 100 billion MLF (medium-term loan facility) sequel, or the recent continuous small reverse repurchase operation for several working days, all reflect the central bank’s policy will to continue to maintain the reasonable and abundant liquidity of the banking system, “no shortage, no overflow”.

At the same time, Yi Gang said that monetary policy should pay attention to both aggregate and structure, and strengthen targeted support for key areas and weak links. On the basis of maintaining the overall reasonable and abundant liquidity, monetary policy can play a certain degree of directional support role in the key areas of the national economy, weak links and social undertakings. In addition, since novel coronavirus pneumonia epidemic, the central bank has implemented a number of measures to effectively help SMEs maintain employment stability.

Zhou Maohua, financial market analyst of Everbright Bank, told Beijing Business Daily that monetary policy needs to focus on key areas and weak links, balance stable growth and risk prevention, mainly reflecting “steady”, “accurate and effective”. At the same time, Yi Gang said that the current policy is in a normal range, which means that there is no need for monetary policy to “enlarge the revenue”.

In the view of the industry, the latest speech of the central bank governor has given the financial market a reassurance. As pan Helin, executive director and professor of the Institute of digital economy of Central South University of economics and law, pointed out, Yi Gang’s speech emphasized the continuity of monetary policy, which is still to seek a balance between prudent and precise monetary delivery, and the policy direction is still a prudent monetary policy, which is in line with market expectations.

Is there still room for lowering the standard

For the follow-up monetary policy, Yi Gang once again reiterated the risk prevention. He said monetary policy needs to balance supporting economic growth with preventing risks. China’s macro leverage ratio is basically stable, which can provide positive incentives for economic entities and restrain the breeding and accumulation of financial risks.

In addition, monetary policy needs to create a suitable environment for deepening financial reform and opening up. On the whole, we need to implement a sound monetary policy, support stable enterprises and ensure employment, continue to fight a battle to prevent and resolve major financial risks, and further deepen financial reform and opening up.

In Zhou Maohua’s view, from the current trend of domestic economic recovery and the information transmitted by the central bank, it is still the general direction for the future policy to slowly return to normalization, but this process is relatively slow. The total amount of monetary policy remains moderately loose, the liquidity is reasonable and abundant, the broad money supply (M2) continues to match the nominal GDP growth basically, and the central bank relies more on structural tools to accurately support the key points Areas and weak links.

“Monetary policy in the future will not be brakes and swerve, but this year there will be a noticeably increased focus on risk prevention. In this regard, we should avoid excessive monetary liquidity and push up asset bubbles. On the other hand, we need to guard against the risk of local capital being removed from reality and virtual and imported.” Zhou Maohua believes that the key to domestic policy adjustment is the development trend of the real economy.

For the follow-up trend of monetary policy, pan Helin predicted that monetary policy will remain stable and neutral, with precise delivery, maintaining economic prosperity and keeping monetary prudence advancing simultaneously.

“At the present stage, there is still room for China’s monetary policy. We should continue to maintain open market operations, such as MLF and reverse repurchase, to maintain market demand at the present stage, and there is still room for reducing reserve requirements. However, the remaining times should be used carefully, and good steel should be used on the blade. Of course, the introduction of monetary policy should be adjusted according to the inflation rate. There will be neither tightening nor easing at this stage. In case of fluctuations in the international financial market, there is still room for China’s market interest rate to be lowered. By guiding the LPR (loan market quotation rate) interest rate quotation and reducing reserves, we can deal with the fluctuation of liquidity well. ” Pan and Lin said.

Improve the standard system of green finance

Besides talking about monetary policy, Yi Gang also mentioned an important area green finance. In recent years, the central bank has made great efforts to develop green finance. By the end of 2020, the balance of domestic and foreign currency green loans in China is about 12 trillion yuan (about 2 trillion US dollars), ranking first in the world; the stock of green bonds is about 800 billion yuan (about 120 billion US dollars), ranking second in the world, playing a positive role in supporting green and low-carbon transformation.

Yi Gang said that China has put forward the carbon peak by 2030 and the carbon neutral target by 2060, and the central bank has identified green finance as a key work in this year and the 14th Five Year Plan period.

Yi Gang focused on five aspects of key work, including improving the green finance standard system, strengthening information reporting and disclosure, fully integrating climate change factors into the policy framework, encouraging financial institutions to actively respond to climate challenges, and deepening international cooperation.

In 2015 and 2018, the central bank formulated the standards for green bonds and green credit respectively, and will soon complete the revision of the catalogue of green bond support projects and delete the contents related to fossil energy. On the other hand, in terms of strengthening information reporting and disclosure, green financial bonds in the inter-bank market have been required to disclose the use of raised funds on a quarterly basis. At the same time, financial institutions need to report the use of funds and investment direction of green credit. Yi Gang said that in the next step, the central bank will promote the establishment of a compulsory information disclosure system step by step on the basis of existing pilot projects, covering all kinds of financial institutions and financing entities, and unifying the disclosure standards.

In addition, Yi Gang also revealed that in terms of financial stability, the central bank is studying systematically considering climate change factors in the stress test of financial institutions. In terms of monetary policy, we are studying how to encourage financial institutions to provide financial support for carbon emission reduction through preferential interest rates, green special refinancing and other support tools. In terms of foreign exchange reserve investment, we will continue to increase the allocation of green bonds, control investment in high-carbon assets, and incorporate climate risk factors into the investment risk management framework.

Pan Helin believes that this speech has released a signal to the market that financial institutions need to re-examine their existing projects, assess whether there are environmental protection and emission reduction risks, so as to timely adjust and optimize the structure of financial projects in hand. He further added that the general principles and general direction of green finance have been established, but the rules need to be further refined.

Yi Gang said that the central bank has guided the pilot financial institutions to measure the carbon emissions of the project, assess the climate and environmental risks of the project; it has evaluated the green credit of banks on a quarterly basis, and is studying and evaluating the performance of financial institutions in carrying out green credit and green bonds.

Zhou Maohua believes that with global climate change, the constraints of economic development and environmental resources become more and more obvious, and the development of green finance is unstoppable. For financial institutions, the first is to enhance the participation initiative; the second is to improve the “identification” ability of green projects; the third is to enhance the innovation ability and risk prevention and control ability of green financial products.

Some financial institutions have taken actions, for example, ICBC has incorporated environmental and social risk compliance requirements into the whole process management of investment and financing. Bank of China is studying environmental risk stress testing.

In addition, recently, the interbank bond market has successfully issued carbon neutral bonds to raise funds for clean energy projects with carbon emission reduction benefits.

Beijing Business Daily reporter Yue Pinyu Liu Sihong

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