As part of the annual meeting of the National People's Congress continuing today, Chinese officials have announced a shift in monetary policy settings from prudent to moderately loose. This suggests that measures such as reductions in reserve requirements and borrowing rates may soon be announced to provide support to economic activity.

Officials at that meeting retained a GDP growth target for 2025 of around five percent, as they have for the past two years, with measures aimed at boosting domestic consumption expected to offset the potential impact of trade tensions with the United States. Officials, however, lowered their inflation target from three percent to two percent in response to persistently subdued price pressures.

This weaker inflation outlook appears to have provided scope for the shift in the monetary policy stance. Officials lowered reserve requirements in February and September last year, while the loan prime rate was cut in October. Officials, however, have continued to describe policy settings as"prudent, a stance that has been in place since 2011. Although this shift to moderately loose does not indicate that large changes in policy will soon be forthcoming, it does provide officials with greater flexibility to respond to any slowdown in economic activity associated with ongoing weakness in the property market or greater trade tensions.

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