China has room to ramp up monetary policy support for the economy following interest rate cuts on Jan 17, thanks to the country's reduced debt level, officials and experts said on Jan 18.
Liu Guoqiang, vice-governor of the People's Bank of China, the nation's central bank, said a continuous decline in the country's macro leverage level, or the debt-to-GDP ratio, has provided room to beef up financial support for small businesses, technological innovation and green development.
"The macro leverage ratio has decreased in five consecutive quarters and created the room for future monetary policy (support)," Liu said at a news conference on Jan 18.
China's macro leverage ratio dropped to 272.5 percent by the end of last year, down 7.7 percentage points from a year earlier, Liu said, adding that the ratio is expected to stay largely stable this year given the country's economic resilience.
He added that there is space to reduce the reserve requirement ratio, the proportion of money that banks must hold as reserves, though that room has narrowed following two RRR cuts last year.
On Jan 17, for the first time since April 2020, the central bank lowered the interest rate of the one-year medium-term lending facility, a key policy rate, by 10 basis points to 2.85 percent in order to reduce corporate financing costs.
The interest rate of seven-day reverse repurchase agreements was also trimmed by 10 basis points to 2.1 percent.
The central bank must give ample policy support to the economy and make efforts as quickly as possible, Liu said.
He added that downward economic pressure should later subside as coordinated policy support takes effect. China is expected to retain economic growth higher than major developed economies this year, after achieving 8.1 percent growth in 2021.
With Liu's remarks signaling a more proactive policy stance, experts said more easing measures, including interest rate reductions and RRR cuts, could be on the horizon if economic sentiment sours.
"More easing could follow, including to other benchmarks like the loan prime rate, which was already cut last month," said Dai Min, multiasset investment director with Fidelity International.
Some experts said a growing divergence in monetary policy between China and the United States could weaken the renminbi. Liu said the currency is expected to remain generally stable in the long term despite short-term disruptions.
Sustained currency depreciation or appreciation hardly happens with large economies, and it is "even more impossible" for China, Liu said, as the country has been prudent in launching stimulus measures.
The central bank also said on Jan 18 it will further pilot digital renminbi in areas such as retail and public services, after 261 million individual digital renminbi wallets had been set up by the end of last year with the transaction value totaling 87.57 billion yuan ($13.79 billion).