Analysts said the focus of PBoC on preventing idle capital circulation should be viewed as a move to ensure funds flow into the real economy.
BEIJING: China’s monetary conditions are likely to remain reasonably accommodative in the coming months, continuing to support credit expansion while contributing to steadier capital market expectations, analysts say.
They said that the focus of the People’s Bank of China (PBoC), the country’s central bank, on preventing idle capital circulation should not be seen as an effort to cool the recent stock market rally.
Rather, it should be viewed as a move to ensure funds flow into the real economy instead of idling within the banking system.
Nevertheless, they noted that near-term cuts in the reserve requirement ratio – the proportion of deposits banks must keep as reserves – or interest rates appear unlikely given the recent pickup in China’s core inflation, with any new significant easing moves likely to depend on economic data and may potentially occur in the fourth quarter.
Li Chao, chief economist at Zheshang Securities, said monetary policy is likely to remain moderately accommodative rather than shift towards tightening in the coming months.
Li said that as external shocks linger and domestic structural challenges persist, including insufficient demand and excessive competition on the supply side, a moderately accommodative policy is needed to offset the downward economic pressures, with further cuts in the reserve requirement ratio and interest rates possible this year.
The PBoC pledged in its second quarter monetary policy report last Friday that it will strive for better implementation of the moderately loose monetary policy and maintain abundant liquidity.
The central bank added it would help maintain price levels at a reasonable range and promote a decline in overall social financing costs.
The report also pointed to the need to enhance the efficiency of fund utilisation, prevent idle capital circulation and strike a proper balance between supporting the real economy and maintaining the financial sector’s own soundness.
Yang Fan, chief macro and policy analyst at CITIC Securities, said: “The central bank’s emphasis on preventing the circulation of idle capital highlights its focus on curbing the use of low-interest loans for nonproductive purposes.”
Among these were the redepositing into higher-yield deposits or buying wealth management products, rather than tightening credit to reduce leverage in the financial system, the CITIC analyst added. — China Daily/ANN
