CHINA’S central bank unleashed a blitz of policy support for the economy, as policymakers made their broadest swing so far to hit this year’s annual growth target of about 5 per cent.
People’s Bank of China (PBOC) governor Pan Gongsheng announced a cut to the amount of money banks must hold in reserve, taking it to the lowest level since at least 2020, and cut a key policy rate at a rare briefing in Beijing on Tuesday (Sep 24). That marked the first time both measures were slashed on the same day in at least the past decade, underscoring the urgency of his task.
The central bank chief also unveiled a package to shore up the nation’s beleaguered property market, including lowering borrowing costs on as much as US$5.3 trillion in mortgages and easing rules for second-home purchases. China will allow funds and brokers to tap PBOC funds to buy stocks, he added.
Financial markets gave the package a cautious thumbs-up. The CSI 300 Index rose for a fifth straight day, gaining 0.5 per cent, with around 200 of the companies in the gauge climbing on the day. Commodities markets eked out small gains and the yuan was little changed against the US dollar. China’s 10-year bond yield fell as low as 2 per cent for the first time on record.
While economists agreed Pan’s policy barrage beat expectations, many questioned whether they could address issues dogging the world’s No 2 economy, including weak consumer demand that has spurred the nation’s longest deflationary streak since 1999.
“It’s hard to say what silver bullet can help resolve everything,” said Ken Wong, Asian equity portfolio specialist at Eastspring Investments Hong Kong. “While it’s good to have monetary easing measures that are accommodative, more needs to be done in order to help solidify fourth quarter growth.”
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President Xi Jinping’s government has been trying to give the economy a kick without resorting to bazooka stimulus packages of past years, but so far piecemeal efforts have failed to arrest the slump. Economists at Wall Street banks including JPMorgan Chase are predicting China will fall short of delivering on this year’s growth target.
The Federal Reserve’s bigger-than-expected half-percentage point slash last week given central banks across Asia more room to move. Pan’s decisive move to ramp up monetary policy sets the stage for the Finance Ministry to unveil its own efforts to boost growth, amid criticisms that fiscal support is lagging.
“It is too far from being a bazooka,” ANZ chief greater China economist Raymond Yeung said of the package. “We are not sure how much the mortgage rate cut will induce a property recovery.”
China’s property rescue package unveiled in May has failed to turn around a years-long real estate slump that’s wiped out an estimated US$18 trillion in wealth from households. Only 29 cities out of 200 urged to participate are heeding Beijing’s call to help absorb an excess of housing. New home prices clocked their biggest decline last month from July since 2014.
The central bank governor made the latest announcement at his first high-profile press conference since March, when he defended the government’s growth goal of about 5 per cent alongside other top economic officials.
The PBOC chief has displayed a more transparent approach to policy this year, in a bid to stabilise sentiment. Pan used a similar briefing in January to announce a cut to the amount of money banks must hold in reserve two weeks ahead of time, as authorities tried to halt a US$6 trillion stock-market rout.
“Monetary policy easing come bolder than expected,” said Becky Liu, head of China macro strategy at Standard Chartered. “We see room for bolder easing ahead in the coming quarters, following the Fed’s outsized rate cuts.” BLOOMBERG
