By Ryan Woo and Liangping Gao
BEIJING- China’s central bank on Tuesday announced broad monetary stimulus and property market support measures to revive an economy grappling with strong deflationary pressures and in danger of missing this year’s growth target.
The broader-than-expected package marks the latest attempt by Chinese officials to restore confidence in the world’s second-largest economy after a slew of disappointing data in recent months.
But analysts noted the absence of any policies aimed at supporting real economic activity. Given weak credit demand from businesses and consumers, more fiscal stimulus may be needed to complement the moves announced by the People’s Bank of China for growth to return to a trajectory towards this year’s roughly 5 percent target.
“This is the most significant PBOC stimulus package since the early days of the pandemic,” said Capital Economics analyst Julian Evans-Pritchard.
“But on its own, it may not be enough.”
Chinese stocks and bonds rallied and Asian stocks hit 2-1/2 year highs as Governor Pan Gongsheng announced plans to lower borrowing costs and inject more liquidity into the economy, as well as to ease households’ mortgage repayment burden.
Pan told a news conference the central bank will in the near future cut the amount of cash that banks must hold as reserves – known as reserve requirement ratios (RRR) – by 50 basis points (bps).
That would free up about 1 trillion yuan ($142 billion) for new lending. Depending on the market liquidity situation later this year, the RRR may be further lowered by 0.25-0.5 percentage points, Pan said.
The PBOC will also cut the seven-day repo rate, its new benchmark, by 0.2 percentage points to 1.5 percent . The interest rate on the medium-term lending facility will drop by about 30 basis points, and loan prime rates by 20-25 bps.
“The move probably comes a bit too late, but it is better late than never,” said Gary Ng, senior economist at Natixis.
“China needs a lower-rate environment to boost confidence.”
Pan did not specify when the moves will come into effect.
The property market support package included a 50 bps reduction on average interest rates for existing mortgages, and a reduction of the minimum downpayment requirement to 15 percent on all types of homes, among other measures.
China’s property market has been in a severe downturn since peaking in 2021. A string of developers have defaulted, leaving behind large inventories of unwanted apartments and a troubling list of uncompleted projects.
Beijing has removed many home purchase restrictions and sharply lowered mortgage rates and downpayment requirements in response, but has so far failed to revive demand or arrest slumping home prices, which fell at the sharpest pace in more than nine years in August.
The property crisis has weighed heavily on the economy and crippled consumer confidence, given that 70 percent of household savings are parked in real estate. – Reuters
