China to Loosen Monetary Policy in 2025 to Spur Growth
By Caixin
China is to loosen its monetary policy in 2025 and adopt measures designed to further expand domestic demand, marking a shift from the “prudent” monetary stance maintained for the past 14 years.
A meeting of the 24-member Politburo on Monday heralded a “moderately loose” monetary policy for the coming year, as well as the adoption of “more proactive” fiscal measures to boost domestic consumption, while strengthening the “unconventional counter-cyclical” adjustment.
A readout from the meeting said it aimed to “vigorously boost consumption” and that increasing domestic demand was a top task for 2025.
To sustain economic recovery, the leaders called for renewed efforts to stabilize the property and stock markets and to mitigate external shocks.
The meeting, at which leaders shape the policy outlook for the year ahead in preparation for the key annual Central Economic Work Conference, set the scene for the most aggressive stimulus in a decade, analysts said.
It is the first time the current leadership has acknowledged that monetary policy should be loose, setting the stage for a new monetary easing cycle, economists at Macquarie Group Ltd. wrote in a report.
The last shift in China’s monetary stance was in 2010, when it moved from “moderately loose” to “prudent” to tackle the fallout from the global financial crisis. The prudent stance has been maintained since then.
Economist Lian Ping said in a recent report that over the past 30 years, China’s monetary policy has evolved through several phases, including “tight,” “moderately tight,” “prudent,” “moderately loose” and “loose.”
Throughout these shifts, the central monetary policy has remained flexible, adjusting between tighter and looser controls based on economic conditions. The overarching goal has been to maintain stability and achieve counter-cyclical adjustments, with “prudent” serving as the core reference point.
Economists at Morgan Stanley said in a report after the meeting that while they maintained their previous forecast of a modest 2 trillion yuan fiscal expansion in 2025, alongside a 40 basis points policy rate cut, they thought a 4% official deficit and more quasi-fiscal measures, such as special bonds for central state-owned enterprises, were becoming more likely.
As Donald Trump prepares to re-enter the White House in January, several analysts said they expect China to cut policy rates further as part of broader measures to stabilize the economy and offset external shocks.
Yi Shan, chief macro economist at Huatai Securities, said with current inflation and nominal GDP growth remaining at low levels, there was still room for monetary policy easing. He anticipated a 20-basis point rate cut in early 2025. If China faces further tariff shocks, additional rate cuts and reserve requirement ratio reductions could follow, although the pace may be influenced by external factors and changes to the yuan exchange rate, he said.
Luo Zhiheng, chief economist at Yuekai Securities, said he expects a 0.5 percentage point cut in both the reserve requirement ratio and interest rates, accompanied by structural monetary tools, including re-lending programs for affordable housing, swap facilities for securities, funds and insurance companies, and loans for stock repurchase.
The Politburo meeting suggested policymakers were willing to do extraordinary things to offset the external shocks. Whether they will need to in 2025 depends on two things: their GDP target and the new U.S. tariffs, said economists at Macquarie.
The meeting didn’t set targets for GDP or budget deficits next year. These are expected to be outlined at the National People’s Congress in early March. It is widely expected that Beijing will keep its 2025 GDP growth target at “around 5%” — the same as 2024’s level.
China’s monetary authority signaled a stance shift in November when the central bank highlighted “supportive” monetary policies in its quarterly policy report. Although officially termed “prudent,” the policy in practice has been moderately accommodative, said an expert close to the People’s Bank of China (PBOC).
China has intensified efforts to boost the economy with a series of stimulus measures in recent months aimed at supporting the stock market, property sector and consumer spending. Last month, Beijing announced a five-year, 10 trillion-yuan ($1.4 trillion) package to address local government debt, while indicating further economic support is to be expected next year.
Since early 2024, monetary policy has taken the lead in addressing weak economic expectations and low business confidence. The central bank began the year with broad stimulus measures, including reserve requirement and interest rate cuts to support growth.
By mid-year, the focus shifted to structural adjustments, with a May policy package aimed at easing the property market’s drag on the economy.
In June, the PBOC laid out its new monetary framework. One key change was to move away from quantitative targets such as total social financing and M2 money supply and put a greater focus on interest rates. Experts said these steps reflect both short-term economic support and a longer-term financial reform agenda.
In late September, the central bank announced a fresh batch of aggressive stimulus measures, followed by an unusual Politburo meeting addressing economic challenges. These moves propelled the benchmark CSI 300 Index to its biggest weekly gain in nearly 16 years.
“The recent policy package isn’t merely a stimulus. Rather, it reflects a major shift in policy logic, combining short-term, demand-boosting measures with a range of reform and structural adjustment plans,” said the expert, adding that strong policy measures can be expected to continue next year to create a favorable financial environment for stable economic growth and high-quality development.
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