Terrence Checki of the Federal Reserve Bank of New York got it half right when he said recently, "Fundamentals are fundamental," and "experience suggests that one cannot overstate the importance of sound economic management, strong fiscal positions, credible proactive monetary policy and rigorous financial-sector oversight".
"Unlike previous episodes of spiking raw material costs, there is now a greater realization across Asia, and apparently also in Korea, that such bursts of inflation cannot be shrugged off as temporary and need to be addressed with a more proactive monetary policy stance," said Song-yi Kim, an economist at HSBC.
Falling inflation permits the government to put in place "proactive fiscal policy and appropriately accommodative monetary policy," said Ting Lu and T. J. Bond, economists at Merrill Lynch, in a research note, adding that they expected more interest rate cuts in the months ahead.
"We should continue to implement a proactive fiscal policy and a prudent monetary policy while giving more priority to maintaining growth," Mr. Wen said, according to the official Xinhua news agency.
Xi Jinping, the party's new boss, has already made the party line clear: fiscal policy will remain "proactive" (ie, not too tight) and monetary policy "prudent" (ie, not too loose).
Their gnomic conclusion: to maintain a "prudent monetary policy" and a "proactive fiscal policy" in the face of an "extremely grim and complicated" global outlook.The annual Central Economic Work Conference CEWCC) sets the tone for China's economic policymaking for the next 12 months.
Laying out a blueprint for the year ahead, Beijing promised to keep monetary policy "prudent," fiscal policy "proactive" and consumer prices stable.
"If you look at the state of the economy, we want — we need — the policy makers to be very proactive, and that means both fiscal and monetary policy makers," said Krishna Memani, director of fixed income and a senior vice president at Oppenheimer Funds.
The key question that needs to be raised by those expecting a dollar rebound later this year: Are traditional assumptions about the connection between growth and proactive interest rate cuts still valid if monetary policy fails?
The comparison between the US and Europe is telling: monetary policy has been far more proactive and expansionary in the US than it has been in the eurozone, which helps to explain the disparity in growth and unemployment rates.
"In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive".
