China: Monetary policy for 2021 to be a mix neutral accommodative with a more stringent financial regulation - BBVA

According to the Research Department at BBVA, support the argument that a neutral, prudent but accommodative monetary policy will be the main monetary policy stance in 2021 in China. The point out the authorities will postpone the beginning of a real tightening cycle and proactive deleveraging to a later stage.

Key Quotes: 

“The domestic economy is not completely recovered to the pre-pandemic level while the global economy is far from stabilization, thus, accommodative policy support will be required for a while.”

“Amid the ongoing strong RMB appreciation trend, hiking interest rate will lead to RMB further appreciation, giving pressure on exports in 2021.”

“We predict a policy mix of neutral while accommodative monetary policy together with a more stringent financial regulation is more likely to be implemented in 2021.”

“Regarding the interest rate, we do not expect the PBoC will hike the LPR next year, maintaining the one-year LPR at 3.85% throughout 2021. We believe the neutral while accommodative monetary policy stance will be conserving Chinese economy to gain all of the lost ground by the pandemic persistently and eventually, and at the same time preventing the financial risks.”