Ryan Wu, Liangping Gao
BEIJING (Reuters) – China’s central bank unveiled a wide-ranging monetary stimulus package and measures to support the property market on Tuesday to jump-start an economy struggling with strong deflationary pressures and at risk of missing this year’s growth targets.
The broader-than-expected measures are the latest attempt by Chinese authorities to restore confidence in the world’s second-largest economy following a series of disappointing data in recent months.
But analysts said there was no policy aimed at supporting real economic activity. Given weak demand for credit from businesses and consumers, further fiscal stimulus to complement measures announced by the People’s Bank of China may be needed to get growth back on track toward its target of around 5% this year.
“This is the most significant stimulus package from the People’s Bank of China since the early days of the pandemic,” said Julian Evans-Pritchard, an analyst at Capital Economics.
“But that may not be enough.”
Chinese stocks and bonds rose, sending Asian shares to their highest in two-and-a-half years, after Governor Pan Gongsheng announced plans to lower borrowing costs, inject more liquidity into the economy and ease households’ mortgage repayment burdens.
Pan told a news conference the central bank plans to cut the amount of cash banks must hold as reserves – the so-called reserve requirement ratio (RRR) – by 50 basis points in the near future.
This will leave about 1 trillion yuan ($142 billion) available for new lending.The reserve requirement ratio (RRR) could be cut further by 0.25-0.5 percentage point depending on market liquidity in the second half of the year, Pan said.
The central bank will also cut its new benchmark seven-day repo rate by 0.2 percentage points to 1.5 percent. Medium-term lending rates will be cut by about 30 basis points and the prime lending rate by 20-25 basis points.
“This step is probably a little late, but better late than never,” said Gary Ng, senior economist at Natixis.
“China needs a low interest rate environment to boost confidence.”
Pan did not say when the measures would take effect.
Asset crisis countermeasures
The real estate market support measures included reducing the average interest rate on existing mortgages by 50 basis points and lowering the minimum down payment requirement for all types of housing to 15 percent.
China’s real estate market has been in a deep slump since peaking in 2021, with a string of developers defaulting on loans, leaving the country with a huge inventory of unwanted apartments and a pile of unfinished projects.
The story continues
The Chinese government has responded by lifting many restrictions on home buying and slashing mortgage interest rates and down payment requirements, but so far that has not helped revive demand for housing or halt the slump in home prices, which fell their sharpest in more than nine years in August.
Given that 70% of household savings is invested in real estate, the real estate crisis is placing a huge strain on the economy and undermining consumer confidence.
The People’s Bank of China also introduced two new tools to stimulate capital markets.
The first is a swap program, initially worth 500 billion yuan, to make it easier for funds, insurance companies and brokers to raise capital to buy shares, while the second will provide up to 300 billion yuan of low-interest loans from the People’s Bank of China to commercial banks to help them buy shares in other entities and fund share buybacks.
No bazooka
Economic data for August came in largely below expectations, raising the urgent need for policymakers to provide further support.
On the fiscal side, local governments have accelerated bond issuance to fund infrastructure projects, but analysts say they may need to raise more.
“Aggressive fiscal policy is needed to inject real economic demand,” analysts at Australia and New Zealand Banking Group said in a note on the PBOC’s move, describing it as “far from a bazooka.”
Investment banks including Goldman Sachs, Nomura, UBS and Bank of America recently lowered their growth forecasts for 2024.
China’s latest measures come after the U.S. Federal Reserve delivered a steep interest rate cut last week, allowing the People’s Bank of China to ease monetary conditions without putting undue pressure on the yuan.
“Most global central banks are on a rate-cutting trajectory, leaving room for further easing in the coming months,” said Lin Song, chief Greater China economist at ING.
“If we also see a significant fiscal policy push, momentum could pick up heading into the fourth quarter.”
(1 dollar = 7.0456 Chinese yuan)
(Additional reporting by Joe Cash; Writing by Marius Zaharia; Editing by Shri Navaratnam and Kim Coghill)
