The financial news reported by the central bank: The central bank pays more attention to guiding expectations and the communication mechanism of policy is becoming more transparent and smooth.

How was the monetary policy in the past year? How is the next step of monetary policy viewed? On November 5, 2024, at the twelfth meeting of the Standing Committee of the Fourteenth National People's Congress, Pan Gongsheng, Governor of the People's Bank of China, delivered a report on the financial situation at the request of the State Council. Pan Gongsheng reported on the implementation of monetary policy over the past year and emphasized the "resolute stance of supportive monetary policy." He proposed to increase the intensity of counter-cyclical adjustments in monetary policy to create a good monetary and financial environment for stable and high-quality economic development. Continuous efforts of supportive monetary policy In the past year, unlike some countries that maintained a high-interest, restrictive monetary policy stance internationally, China consistently adhered to a supportive monetary policy. Dong Ximiao, Chief Researcher of Zhongjun Financial, told the Financial Times reporter, "The prudent monetary policy has been precise and forceful, with significant reductions in reserve requirements and interest rates, synergy with other macroeconomic policies, creating a cumulative effect, effectively boosting market confidence and expectations, and creating a more suitable monetary and financial environment for economic recovery and growth." To support economic recovery and improvement, in 2024, the Central Bank implemented significant monetary policy adjustments in February, May, and July. In late September, the Central Political Bureau meeting proposed to effectively implement existing policies and introduce new policies. The Central Bank promptly introduced a package of new policies. Overall, the policy package introduced by the Central Bank met the urgent needs and was unconventional and powerful, uplifting market sentiment. In response to weak social expectations and insufficient confidence among operating entities this year, monetary policy has consistently been ahead of the market, strengthening policy measures to effectively boost the market. Some statistics strongly indicate the support of monetary policy: with regard to reserve requirements, by the end of October, cumulative reserve requirement cuts had reached 1 percentage point for the year, releasing approximately 2 trillion yuan in long-term, low-cost funds. There is expected to be a further 0.25 to 0.5 percentage point reduction in reserve requirements by the end of the year. As for interest rate cuts, throughout the year, the 7-day reverse repo rate and MLF rate were cumulatively reduced by 30 basis points and 50 basis points respectively, and the 1-year and 5-year and above LPR were cumulatively reduced by 35 basis points and 60 basis points, all significant reductions. This led to new individual housing loan interest rates and corporate loan interest rates reaching historical lows, effectively benefiting the real economy. In addition, Wen Bin, Chief Economist of China Minsheng Banking Corp.,Ltd., said that the Central Bank also injected 1 trillion yuan into the market through buying short-term and selling long-term government bonds and reverse repos, optimizing the market's fund structure while maintaining liquidity.With a future outlook, timely and transparent communication with the market and the public is essential. "After increasing transparency, the comprehensiveness and authority of policies will be strengthened, and the market will naturally develop stable expectations for future monetary policy trends, thereby optimizing their own decisions. Monetary policy adjustments will be more effective with less effort," Pan Gongsheng stated.In recent years, it can be seen from many statements of the central bank that it pays more attention to expectation guidance. According to observations by journalists, the communication mechanism between the central bank and the market has become increasingly smooth since last year: firstly, external communication is more informative, Pan Gongsheng disclosed policies such as reserve ratio cuts and interest rate cuts at the State Council Information Office press conference, greatly boosting market confidence; secondly, multiple channels and progressive strengthening of interpretation and publicity, for example, with regards to long-term government bond yields, the People's Bank of China first expressed concern in a monetary policy committee meeting news release, and then continuously highlighted potential risks in long-term government bond yields through interviews with the Financial Times and monetary policy report columns, while also explaining future government bond selling operations; thirdly, not avoiding issues, proactively answering questions and providing explanations, the People's Bank of China positively analyzed the stage and structural characteristics of real interest rates at a first-quarter press conference, which were of concern to the market; fourthly, language is more straightforward and educational. In the first quarter of this year, the monetary policy implementation report column used language that can be understood by the general public, explaining issues such as "where does money go, and where is money?" When highlighting long-term government bond risks, it also explained bond professional terms such as duration amplification effects in simple terms. "I have noticed that in recent years the channels for transmitting expectations have also undergone significant changes. Previously, reliance on traditional channels such as press conferences, official news releases, expert interviews, and interpretations did not have enough coverage. Now, the influence of internet and self-media information dissemination channels such as WeChat and Weibo is more widespread. An 'essay' on self-media may cause significant disturbances to market expectations through the butterfly effect. These require the central bank to communicate with the market in a timely and comprehensive manner through new channels, clarify policy intentions and market concerns, and uplift market confidence while enhancing the effectiveness of central bank policies," Dong Ximiao told journalists. Increase the intensity of monetary policy countercyclical adjustments Regarding the next steps, Pan Gongsheng stated in the report that they will adhere to a supportive monetary policy stance, increase the intensity of monetary policy regulation, enhance the precision of monetary policy regulation, effectively implement stock policies, and vigorously promote the effectiveness of incremental policies. "Recently, the synergistic effects of monetary policy with fiscal and other policies in various aspects are gradually becoming evident," Wen Bin said, giving examples. In terms of fiscal synergy, the central bank and the Ministry of Finance have set up a joint working group to alleviate the impact of government debt issuance through reserve ratio cuts and interest rate cuts, reduce the cost of local government debt substitution, establish repurchase agreements, and anticipate reserve cuts in preparation for the increase in government debt issuance in November and December. With the coordinated cooperation of monetary and fiscal policies, liquidity remains reasonably abundant throughout the year, without significant financial tension arising due to the increased issuance of government debt; in terms of consumption synergy, there is emphasis on meeting rational consumption financing needs more targetedly, increasing financial support for the "two new" sectors, and once again pushing for a reduction in existing house loan rates, reducing household debt burdens and providing strong support for the recovery of consumption; in terms of capital market synergy, the establishments of securities, funds, and insurance companies exchanging facilities, stock repurchase and increased re-lending contribute to long-term funds entering the market and enhancing the inherent stability of the capital market. In Wen Bin's view, there will be a peak in government debt issuance in the fourth quarter, and the next step can be to coordinate well with government debt issuance, releasing high-quality bond assets frozen by repurchase agreements through tools such as repurchasing to play the role of an interest rate "hub," closely linking long-term and short-term interest rates through the investment and financing decisions of various entities. At the same time, enhancing the link between government bond rates and loan rates and deposit rates, to encourage interest rate alignment between the lending and deposit sides of commercial banks, stabilize interest rate differentials, and further alleviate the constraints on interest rate pricing. Regarding the intensification of countercyclical adjustments in monetary policy, Wang Qing's analysis is that, "with the current global financial environment shifting towards loosening and low domestic price levels, there is ample room for monetary policy to moderately intensify its countercyclical adjustments." He told reporters, "Monetary policy must work in synergy with fiscal, industrial, and other policies." Similar to Wen Bin's viewpoint, Wang Qing believes that with the implementation of incremental fiscal policies, there will be a peak in government debt issuance in the fourth quarter. Therefore, the central bank can timely inject medium- to long-term liquidity into the market through reserve ratio cuts, buying and selling government bonds in the secondary market, and conducting repurchase agreements to support the smooth issuance of government bonds. In addition, Wang Qing suggests that in the fourth quarter, monetary policy can also support infrastructure investment efforts, guide financial institutions to increase their lending efforts in the medium- to long-term in the infrastructure sector, and further leverage the efficacy of structural monetary policy tools to direct financial resources to micro and small enterprises, supporting technological innovation. This article is reprinted from the Financial Times. Editor: Chen Wenfang.