On April 17th, 2024, the Macro-Finance Salon (No.229) was successfully held online, jointly organized by the School of Finance and the National Finance Academy of Renmin University of China (RUC), and hosted by the International Monetary Institute (IMI), RUC. The salon focused on the theme of “The Path of Monetary Policy to Promote High-Quality Economic and Social Development under the Current Situation”.

Liu Zehao, Associate Professor of Department of Monetary and Finance at School of Finance, RUC delivered a keynote speech. Guo Jianwei, former Chief Editor of China Financial Publishing House; Pan Hongsheng, Chief Economist at China Institute of Finance and Capital Markets; E Zhihuan, Deputy Director at Bank of China (BOC) Research Institute; and Zhang Bin, Deputy Director at Institute of World Economics and Politics, Chinese Academy of Social Sciences, among other guests, participated in the discussion. The salon was presided over by Qu Qiang, Assistant Director of the International Monetary Institute, RUC.

First of all, Liu Zehao shared his insights on the path of monetary policy to promote high-quality economic development. He emphasized that the focus of the present monetary policy is to assess the current economic situation. He then offered further explanation from the following aspects: After the COVID-19 pandemic, China’s economic growth still remains at a relatively low level, with a slow pace of recovery and persistent output gaps. Besides, with insufficient effective demand of residents and weak societal expectations, the downward trend in prices has not been reversed, and deflation risks still persist. Pressure on local governments is intense, as is the severity of corporate debt default issues. Moreover, China now is also experiencing accelerated capital flight and brain drain. In response, Professor Liu analyzed the reasons why current monetary policy failed to stimulate the economy from four perspectives. First, insufficient money supply. Second, the current monetary policy transmission mechanism relies too much on administrative guidance. Third, coordination between monetary and fiscal policies. Fourth, the key to reversing market expectations lies in increasing effective demand. Professor Liu’s speech provided a clear and insightful introduction to his thoughts on how monetary policy can promote economic development.

After Liu Zehao’s speech, other attendees shared their in-depth thoughts regarding the path of monetary policy to promote high-quality economic and social development.

Guo Jianwei supplemented his insights from the perspective of banking. He stated that the current economic situation is complex, with insufficient effective demand and overcapacity and supply chain disruption in certain industries. Therefore, monetary policy should remain loose to coordinate economic transformation and capacity adjustment. Additionally, the monetary policy transmission mechanism is crucial. In the credit channel of monetary policy transmission, commercial banks may not allocate funds to certain areas due to asymmetric information, thus making it difficult to implement specific industrial policies or achieve structural adjustment goals through quantity control and market price regulation. Regarding the issue of how monetary policy and fiscal policy can complement each other, Guo Jianwei proposed that government bonds play an important role. Commercial banks can use government bonds as collateral for financing from the central bank, which is equivalent to government bonds circulating in the secondary market. Although the central bank cannot directly purchase government bonds when issued by the Ministry of Finance, it indirectly supports the issuance of government bonds by maintaining a low-interest rate and loose liquidity environment.

Pan Hongsheng stated that the ongoing discussions reflect our desire for monetary policy to play a greater role in the economy. However, monetary policy is just a short-term policy tool. As China’s economy progressing to high-quality development, the cyclical, structural, and institutional issues should all be considered to analyze and assess the implementation and effects of monetary policy. Mr. Pan stated that the effectiveness of monetary policy is directly related to the changes in the transmission mechanism and in the financial market. Fiscal policy and monetary policy have different duties, objectives, tools, transmission mechanisms, and constraints. Therefore, their policy stances, orientations, and operational directions for macroeconomic regulation may not necessarily align: they are more aligned when the economy is in recession, but differences will arise when the economic slowdown is not significant. At present, Pan Hongsheng emphasized that it is crucial to strengthen the coordination between fiscal and monetary policies, clarify their policy orientations and responsibilities, and fully leverage the effectiveness of their tools.

E Zhihuan emphasized that in recent years, the coordination between fiscal and monetary policies in China has been an important challenge of great concern. Through her career journey in BOC (Hong Kong), she recognized that as a relief measure, consumption vouchers have been playing a vital role in economic recovery. Regarding strategies for short-term crisis, she emphasized the importance of taking early action and timely intervention. Additionally, it is necessary to design the operational framework of fiscal and monetary policies that are in line with China’s current situation. She suggested that more efforts should be placed on the construction of the national debt market. Finally, E Zhihuan mentioned that attention should be paid to the impact of the downturn in the real estate market on the economy, especially its impact on consumption expectations from the reverse wealth effect perspective.

Zhang Bin stated that the most prominent challenge facing the economy is insufficient demand, the core of which lies in the price issue. Therefore, he advocated that monetary policy, especially interest rate policy, should be the main tool to address this challenge. He pointed out that lowering the interest rate can enhance economic vitality, thereby providing fundamental support for the exchange rate. Meanwhile, lowering the interest rate also helps to reduce non-performing assets, improve the quality of financial assets, and ensure stable profitability of financial institutions. Monetary policy should focus more on stimulating effective demand rather than having excessive concerns about excess liquidity. Given that this year’s fiscal budget has already been determined, monetary policy should play a greater role in stimulating the economy. In this regard, Zhang Bin suggested that we should reduce the policy rate to lower the real interest rate. By doing so, consumption and investment in the private sector will be stimulated, thus providing necessary support for economic growth.