Policy brief

A compelling case for Chinese monetary easing

In the midst of the heated monetary policy debate, the People’s Bank of China (PBC) since mid-2014 has no doubt started loosening its monetary policy,

Publishing date
28 April 2015
Authors
Guonan Ma

• Chinese monetary policy was excessively tight in 2014 but started loosening in late 2014, in an attempt to cushion growth, facilitate rebalancing, support reform and mitigate financial risk.

• There are three main reasons for this policy shift. First, there is evidence that the Chinese economy has been operating below its potential capacity. Second, among the big five economies, China’s monetary policy stance and broader financial condition both tightened the most in the wake of the global financial crisis, likely weighing on domestic growth. Third, a mix of easy monetary policy and neutral fiscal policy would serve China best at the current juncture, because it would support domestic demand and help with the restructuring of China's local government debts, while facilitating a move away from the soft dollar peg.

• Such a warranted shift in monetary policy stance faces the challenges of uncertain potential growth, a more liberalised financial system, an evolving monetary policy framework, the legacy of excess leverage and a politicised policy debate.

About the authors

  • Guonan Ma

    Dr Guonan Ma was a visiting research fellow at Bruegel until 2016. Prior to this, he was a senior economist at the Representative Office for Asia and the Pacific of the Bank for International Settlements (BIS) for thirteen years. Before joining the BIS in 2001, he worked as a chief North Asia economist for ten years at various investment banks, including Merrill Lynch, Salomon Smith Barney and Bankers Trust.

    Prior to his investment bank career, he was a lecturer of economics and research fellow at the Australian National University for four years following the completion of his Ph.D. in economics at the University of Pittsburgh (1990). Dr Ma was born in China where he obtained his undergraduate degree at Beijing University (1982). Guonan Ma has many publications on the Asian and Chinese economies and financial markets over the years.

    Declaration of interests 2015

    Declaration of interests 2016

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