China's Policy Shift

Investing.com — China's Politburo has announced plans to adopt a "moderately loose" monetary policy and "unconventional countercyclical adjustment" during its December meeting, as noted by Bank of America on Tuesday.

This marks the first instance since 2011 that such terminology has been used, indicating the urgent need to address weak aggregate demand and stabilize key markets.

Bank of America indicated, "It indicates the overall policy stance is stronger and more positive than that at the Sep 26 Politburo meeting.”

The leadership has reaffirmed its commitment to stabilizing the property and stock markets while addressing local government fiscal challenges.

Specific measures are expected to be discussed at the upcoming Central Economic Work Conference (CEWC), although numerical growth targets and fiscal stimulus announcements are likely postponed until March’s National People’s Congress.

Monetary easing could involve a cut in the reserve requirement ratio (RRR), especially before the Lunar New Year when liquidity is typically tighter.

A crucial short-term catalyst for fiscal policy may include the continuation of government subsidies for auto and appliance purchases. BofA also mentions potential moves to increase local government expenditures and improve efficiency.

Markets have reacted positively to these signs, raising expectations for stronger consumer subsidies and an increase in consumption.

According to BofA, "more proactive" fiscal measures are anticipated to accompany monetary easing, with detailed strategies to be revealed at the CEWC.

BofA notes, "Unless the U.S. tariff shock is significant in size and timing, we believe that further policy catalysts might have to wait until the Two Sessions in March."