China's economic downturn amid COVID outbreak may result in PBOC easing

According to economists, China’s economic slowdown together with strict COVID-19 restrictions will be the main reasons why the PBOC will ease monetary policy. In addition to this, they expect the central bank to keep reducing the key policy interest rate in the short term. 

On Friday, the People's Bank of China announced it would reduce the reserve requirement ratio for most banks. It will allow banking institutions to ramp up support for sectors of the economy racked by the COVID-19 pandemic. Many analysts were surprised by the news as the central bank had recently warned about rising inflation risks. 

The authorities express concerns about China's economic growth prospects as new COVID-19 cases soar to the highest levels. With new restrictions introduced in such major cities as Beijing and Guangzhou, a decline in economic activity and social unrest became a reality for China. 

Yu Yongding, a former member of the central bank’s monetary policy committee, highlighted that the policymakers should pay special attention to stabilizing economic growth rather than curbing inflation. He believes that China needs to switch the emphasis of monetary policy to easing.