context: Commentators are calling for concerted stimulus to reverse 20 months of declining producer prices and stagnant inflation. Beijing has slowly introduced gradual interest rate cuts. This ‘combined fist’ policy shift is meant to turn weak expectations. Two new monetary policy tools are aimed at raising equity prices and assisting investment funds. Pan Gongsheng 潘功胜 central bank governor tells markets that Beijing is listening and will not forget them. But whether Beijing's purposeful popping of the real estate bubble, and its downstream effects, can be reconciled with the kind of policies markets are clamouring for remains unclear.
PBoC (People’s Bank of China), NAFR (National Administration of Financial Regulation) and CSRC (China Securities Regulatory Commission) held a press conference on finance supporting high-quality development on 24 Sep 2024. Pan Gongsheng 潘功胜 PBoC governor announced a number of monetary stimulus measures, including
- lowering the RRR by 0.5 percentage points
- estimated to release C¥1 tn in liquidity
- said may be further lowered according to market conditions
- reduced 7-day repo rate from 1.7 to 1.5 percent
- guide reduction in loan prime rate and deposit interest rates
- introduced a new re-lending tool to support bank loans used for stock buybacks
- C¥300 bn initially
- further increase possible according to market conditions
- create new tool to provide liquidity to insurers and securities funds
- allows institutions to swap low-liquidity assets for PBoC assets
- initial offering of C¥500 bn
Wu Qing 吴清 CSRC head announced policymakers would soon publish
- Guiding Opinions on long-term funds entering capital markets
- Opinions on reforming mergers and asset reorganisations
Bank-owned financial asset investment companies will be further allowed to invest in securities, increasing their ability to purchase stocks.
The measures exceeded market expectations, reports Jiemian. The three most important stock indices rose 4 percent after the press conference, showing the centre’s policies were welcomed. Ten year government bond yields increased, reflecting lower interest rates.
The combined policies reflect the implementation of the July 2024 Third Plenum’s call to create a robust expectations management mechanism, explains Luo Zhiheng 罗志恒 Yuekai Securities chief economist. Regulators’ language implies more support could come if the current offering is insufficient, calming markets.
This may be a turning point in policy approach, contends Ren Zeping 任泽平 Soochow Securities' chief economist. The PRC is going through a historic moment of deflation that is hurting growth, requiring serious stimulus. The US Federal Reserve’s reduction in interest rates has notably created more space for monetary authorities around the world to follow suit, and the PRC is part of that group.