Chinese top leadership surprised the market Monday by signaling a shift in its monetary policy stance after 14 years, indicating the economic challenges facing the country are quite entrenched, yet an outsized stimulus is unlikely, according to experts.
China is looking to switch its policy stance next year to "moderately loose" from "prudent" — a phrase they haven't used since the depths of the global financial crisis in 2008, when they loosened the stance and stuck with it until 2010.
This is the first time the current leadership has acknowledged that monetary policy should be loose, setting the stage for "a new monetary easing cycle," said Larry Hu, chief economist at Macquarie.
"Such a tone suggests that policymakers are deeply concerned about the economic outlook, given the sluggish domestic demand and the threat of another trade war," Hu added.
Despite a flurry of stimulus measures since late September, recent economic indicators have showed the world's second-largest economy is still struggling with deflationary pressures, amid tepid consumer demand and a prolonged housing downturn.
Persons:
Larry Hu, Hu, Tao Wang
Organizations:
Macquarie, UBS Investment Bank
Locations:
China, Asia