(Yicai Global) April 7 -- China has the space to further ease monetary policy, analysts said, after the cabinet said the country will deploy various monetary policy tools at an “appropriate time” to support the real economy.

China’s monetary policy will be more proactive in future, guiding financial institutions to give up more of their profit to benefit the real economy and further support the weak links and key areas of the economy, said Zhou Maohua, an analyst with China Everbright Bank’s financial markets division.

According to a statement after the State Council meeting chaired by Premier Li Keqiang yesterday, China will step up the implementation of its prudent monetary policy, study financial measures to support consumption and investment, and set up two new special refinancing tools.

“Most of these tools target monetary aggregates,” said Wen Bin, chief researcher at China Minsheng Bank. “The tools, which include reserve requirement ratio cuts and enhancing open market operations, keep liquidity at a reasonable level, reflecting the requirements of a prudent monetary policy.”

Refinancing tools avoid impacting inflation and liquidity expectations, and reflect the accuracy of the policy, according to experts.

The two special financing tools will postpone old-age insurance premiums on a time-limited basis for industries experiencing special difficulties and channel more unemployment insurance funds to support companies in maintaining stable payrolls and training.

The People’s Bank of China will provide financial support to these two loan principals and use special government bonds to replenish the capital of small and mid-sized banks to strengthen their credit capacity.

Judging from the implementation of previous financing tools, increasing the refinancing quota will immediately stimulate loan issuance and effectively lower financing costs for companies in the real economy. The practice of first issuing loans and then applying for re-loans from the central bank guarantees that the use of the fund is accurate and can directly target the companies.

Editors: Liao Shumin, Futura Costaglione