The Central Bank of China is willing to do anything to meet its growth goal

Chinese authorities are accelerating what to date has been a relatively gradual easing of growth-supporting policy. However, everything indicates that more decisions will be made from now on. With the real estate market pushing downwards, youth unemployment on the rise, and local administrations in need of liquidity, the Chinese government has no choice but to take a step forward with the implementation of a more expansive roadmap at the national level. monetary and fiscal, despite not making a move at this week’s meeting.

Amid growing concerns about the slow pace of the economy’s recovery this year, the People’s Bank of China (PBoC) reduced its reserve requirement ratio (RRR) by a quarter point to a weighted average of 7.4% in September, releasing some 500 billion renminbi ($69 billion) of long-term liquidity in the banking system. “This should help meet the increased demand for liquidity, mainly due to the acceleration of local government bond issuance since the end of August, and will support efforts to achieve this year’s growth target of around 5%,” commented the Fidelity experts in a recent report.

The markets’ clamor for more to shore up the economy has grown louder over the recent summer and the decision was in line with measures created by market consensus. However, in its press release, the PBoC reiterated that policy support must “ensure both the quality and quantity of economic growth, a sign that countercyclical policy support will be strengthened to stabilize rates” of growth. . “.

Relaxation measures remain small and piecemeal, but increasingly frequent. After having cut its reference interest rates between 10 and 15 basis points in August, the latest measures reiterate the more proactive stance of policymakers. They are completely committed to the idea that the second most important economy on the planet does not have to continue at the current rate of deceleration, but that the time has come to step on the accelerator again.

Authorities are also stepping up fiscal and real estate easing, bringing forward spending and easing administrative measures in major cities to boost property sales. “However, we continue to wait for a more coordinated policy orientation that addresses structural issues, whether local government debt problems or the long-term prospects of the real estate sector,” point out the experts at the American manager.

Morgan Stanley also believes that policymakers will communicate with the market on the outlook for long-term structural policy in a “more comprehensive” manner at upcoming key meetings, including the possibility of “a special National Finance Work conference.” “. “, as well as the “Third Plenary Session of the new Central Committee, scheduled for the last quarter of this year.” The way of transmitting the message seems to be a fundamental task in the current context.

For now, experts believe that the PBoC will probably continue to ease its monetary policy gradually. “We expect another cut in the minimum reserve ratio and a 10 basis point cut in the reference rate before the end of the year to maintain accommodative monetary support,” they say of Fidelity in this regard. The reality is that structural monetary policy instruments, such as the collateralized supplementary loan (PSL) facility, are also increasingly likely to be used to support the real estate sector by offering financial assistance to construction projects. redevelopment.

These monetary stimulus measures, along with the various fiscal and regulatory easing measures we have seen over the past two quarters, will together stabilize growth momentum, likely ensuring that the Chinese economy remains on track to achieve the growth target. of this year. The executive is clear that we must recover the path of stability and slam the door on the doubts that have been generated externally.

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September 22, 2023 10:20 pm