PBOC to keep big changes in check

China passed through 2014 under a cloud of weakening economic fundamentals. In order to form rational expectations, it is essential for all market players to have an accurate picture of the central bank's monetary policy direction in 2015.

A recent article written by a member of the People's Bank of China's (PBOC's) monetary policy division declared that China should be cautious and maintain a stable monetary policy this year. This is to say that the central bank should make only modest adjustments to the intensity of its policies in order to match economic reality, while simultaneously avoiding a sharp growth downturn or an overdose of liquidity.

Recent steps by the central bank reflect this more conservative policy orientation, including a move Friday to raise a reloan limit for commercial banks by 50 billion yuan ($8.05 billion) in order to encourage lending to small enterprises.

China's economy is heading toward a long-term period of stable growth and economic realignment. As long as the country keeps moving in this direction, drastic changes to the PBOC's policy stance are unlikely.