(Yicai) March 5 -- China will cut the reserve requirement ratio for banks and interest rates when it is appropriate, as part of its "moderately loose" monetary policy, Premier Li Qiang announced in the government’s annual work report to the nation’s top legislature today.

Monetary policy should be eased "as early as possible, better earlier than later," the report said, indicating a sense of urgency on the economy. The pace of easing may quicken, including cuts in borrowing costs and the share of deposits that banks must hold in reserve, Ming Ming, chief economist at Citic Securities, told Yicai.

In recent years, China’s monetary policy has been constrained by factors such as a weaker Chinese yuan, narrower net interest margins at banks, and the need to prevent the idle circulation of funds. 

In a move away from the “prudent” stance followed over the past 14 years, the country’s top leadership pledged to pursue a "moderately loose" policy this year at a meeting of the Political Bureau of the Communist Party of China Central Committee held on Dec. 9.

The government’s work report also highlighted the dual quantitative and structural roles of monetary policy tools to maintain ample market liquidity, with the goal of ensuring that the increase in total social financing and the money supply aligns with the country’s economic growth and inflation targets.

This year’s policy orientation is consistent with that proposed by the annual Central Economic Work Conference held on Dec. 11 and 12, Ming noted, adding that the central bank is expected to continue to release medium-to-long-term liquidity through reverse repurchase operations and treasury bond buying, based on the supply of government bonds.

In terms of policy innovation, the work report proposes optimizing structural monetary policy tools, increasing support for technological innovation, green development, consumption, and private micro and small enterprises, as well as implementing measures to promote the healthy development of the property and stock markets.

China may introduce a special relending facility to promote consumption and lower relending interest rates for tech innovation to enhance credit support in key areas, said Wang Yunjin, senior researcher at the Zhixin Investment Research Institute.

Editor: Futura Costaglione