POLICYMAKERS should pursue a proactive fiscal policy and cut interest rates to support flagging economic growth, a financial magazine yesterday quoted Sheng Songcheng, an adviser to the People’s Bank of China (PBOC), as saying.

But as China does not face the same deflationary pressures that exist overseas, fiscal policy measures should be the first consideration, with monetary policy playing a supporting role, Yicai quoted Sheng as saying.

Sheng said a recent jump in pork prices “has certainly inhibited monetary policy, but core inflation and PPI (producer price inflation) remain on a downward trend.”

“Because of this, monetary policy shouldn’t be a flood, but there still is a need for structural adjustments.”

Sheng said that policymakers should pursue fiscal solutions as a priority, including front-loading the issuance of local government bonds to support infrastructure projects, and continued cuts to taxes and fees, a strategy it has pushed for two years.

Rather than cutting reserve requirement ratios (RRRs) for banks, cutting the medium-term lending facility (MLF) rate or the loan prime rate (LPR) would be more helpful in lowering real financing costs, Sheng said.

Sheng said that while another RRR cut cannot be ruled out, banks do not lack liquidity at the moment. He said that lowering real financing costs and increasing firms’ appetite for new borrowing should be policymakers’ priority.

China’s real estate controls are just right and should not be further tightened, Sheng said.

“In the past six months, real estate investment growth has continued to decline. If supply continues to be inhibited, it may not be possible to control housing prices as scheduled,” he said.(SD-Agencies)