Beijing to ramp up monetary stimulus

Guiding hand: Guards are seen outside the PBoC building in Beijing. The central bank this week asked banks to stabilise lending to developers, in a bid to boost the country’s ailing property sector. — Bloomberg

BEIJING: China signalled more monetary stimulus, including a likely cut to the reserve requirement ratio (RRR) for banks, as it ramps up support for an economy under strain from surging Covid cases and more lockdowns.

The State Council, China’s cabinet, said in a statement that monetary tools will be used “in a timely and appropriate manner” to maintain reasonably ample liquidity. It also called on “greater support” for bond financing for private firms, a policy mainly targeting cash-strapped property developers.

The People’s Bank of China (PBoC) usually cuts the RRR – the amount of cash banks must keep in reserve – within days of such statements by the cabinet. The PBoC last cut the RRR in April, by 25 basis points for most banks, a smaller reduction than economists had expected.

China’s economic outlook is darkening as covid cases climb to a record and cities tighten restrictions to combat the spread of infections. Although officials are trying to recalibrate the zero-covid policy to minimise the economic and social damage, the recent surge in cases has seen major cities like Beijing, Chongqing and Guangzhou tighten controls. That’s dampening consumer spending and causing disruption to businesses, weighing on the growth outlook.

Nomura Holdings Inc on Thursday cut its forecasts for China’s economic growth for this year and next, citing a “slow, costly and bumpy” reopening of the country.

Goldman Sachs Group Inc economists said the State Council’s meeting was a “response to increased growth downward pressures due to widened Covid curbs on the back of the rising local case number”. They also see the chance of targeted interest rate cuts to guide banks to further lower funding costs for small firms.

China is taking more concerted steps to boost an ailing property sector, with the recent announcement of a 16-point rescue package for the sector. The PBoC and the banking regulator this week asked banks to stabilise lending to developers, a call that’s been heeded by major state-owned banks, who are offering at least 220 billion yuan (RM141bil) in new credit to property developers.

“The State Council’s call for a cut in the RRR for banks is not a surprise – we’ve expected a move by year end. China is struggling with sluggish growth, decelerating credit and Covid flare ups that are prompting curbs on activity. Our analysis of liquidity conditions pointed to the need for an RRR cut,” said economist David Qu.

Most analysts had been expecting a RRR cut by early next year. The move, which might replace some maturing policy loans, would unleash liquidity into the interbank system and reduce banks’ funding costs. The cost of issuing one-year negotiable certificates of deposits, a key form of banks’ short-term debt, spiked to the highest in nearly 11 months last week, underlining the liquidity stress faced by lenders.

A cut to the RRR, especially a targeted one, could “ensure financial and credit support to the real economy and provide stronger support to several sectors” including households that suffered most from Covid, said Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle Inc.

The cabinet also said the foundations of recovery should be consolidated and economic growth kept in a “reasonable range,” according to the statement published by the Xinhua news agency. It pledged to help the development of online platform companies and ensure the smooth operation of eCommerce operators and delivery networks.

The PBoC has become increasingly confident in setting monetary policy that diverges from the rest of the world, having allowed for more flexibility in the yuan’s exchange rate and refined capital controls in recent years. — Bloomberg

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China , stimulus , monetarytools , PBoc , StateCouncil , RRR


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