China Stimulus Hopes Rise as PBOC Cuts Rate, Plans Briefing
Bloomberg News
5 min read
(Bloomberg) -- China announced plans for a rare briefing on the economy by three top financial regulators just as it cut one of its short-term policy rates, fueling speculation officials are preparing to ramp up efforts to revive growth.
Authorities announced Monday that central bank governor Pan Gongsheng will hold a press conference tomorrow on financial support for economic development, alongside two other officials. Minutes later, the People’s Bank of China lowered the 14-day reverse repurchase rate, catching up with reductions initiated in July.
Taken together the moves bolster expectations for the PBOC to lower rates, after the US Federal Reserve finally started cutting last week easing pressure on China’s need to defend its currency. A slew of disappointing data in August raised concerns that President Xi Jinping’s government could miss its annual growth target of around 5% without unleashing more support.
Traders appeared to be pricing in more stimulus, with the yield on China’s 10-year government bonds falling to a fresh low of 2.03% in the Monday morning session. The benchmark CSI 300 Index for onshore stocks marked their fourth straight day of increases, the longest streak in two months.
“I do expect the PBOC to cut the 7-day reverse repo rate as well as the reserve requirement ratio in the coming months,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. The briefing will give regulators a chance to “shed light on their policy stance,” he added.
That event kicks off at 9 a.m. — 20 minutes before the PBOC’s daily announcement on its short-term policy loans and their costs, in contrast to more typical 10 a.m. start times.
Pan used a similar briefing in January to announce a cut to the amount of money banks must hold in reserve — the RRR — two weeks ahead of time, as authorities tried to halt a $6 trillion stock-market rout. The governor has displayed a more transparent approach to policy as he tries to boost confidence.
The central bank chief vowed to “enhance the intensity of monetary policy adjustment,” at an event in Macau on Monday, according to a statement posted on the PBOC’s website. The authority recently signaled it was preparing additional policies.
While the Fed’s bigger-than-expected half-percentage point slash has given central banks across Asia more room to move, not all are immediately following suit. Indonesia’s central bank unexpectedly reduced its main rate last week, but the Bank of Australia is set to hold on Tuesday, echoing last week’s decision by Japan’s monetary authority which is on a hiking path.
China’s string of rate cuts hasn’t done enough to stimulate an economy that most recently expanded at the slowest pace in five quarters. The years-long real estate crisis that’s wiped out an estimated $18 trillion in wealth from households has crushed appetite for spending and pushed China into its longest streak of deflation since 1999.
That means real interest rates — which are adjusted for changes in prices — have stayed elevated, weakening the impact of any moderate easing. A plunge in revenue from land sales has also held back fiscal spending, leaving indebted local governments struggling to pay their bills and with little bandwidth to invest in growth-boosting projects.
Now, the focus is on whether China’s fourth-quarter growth can get “remotely close” to the annual target, said Ken Wong, Asia equity portfolio specialist at Eastspring Investments, adding that a 4.8% expansion looked most likely for 2024. “Monetary policy could help,” he said, “but ultimately getting the consumer to spend, and building up consumer confidence, is going to be key to China.”
Economists in a Bloomberg poll pinpointed enforcement of the housing rescue package China unveiled in May as the single most-impactful way officials can give the economy a kick. So far, uptake has been weak with only 29 of some 200 cities heeding the call to absorb a housing glut.
“It is also needed for the PBOC to guide lower the interest rates on existing mortgages,” said Credit Agricole Chief China Economist Xiaojia Zhi, responding to the Monday cut. Regulators are also working on a proposal that would allow mega cities such as Shanghai and Beijing to relax restrictions for non-local buyers, Bloomberg News previously reported.
China has a window Wednesday to lower the cost of its one-year policy loans, which officials have downplayed in recent months in favor of short-term rates to guide the market. That means the PBOC might opt to cut its new policy rate before making any change to the medium-term lending facility.
Underscoring the shift in sequence, the central bank in July cut the seven-day reverse repo rate days before it slashed the MLF by the most since April 2020.
The PBOC’s decision to lower the 14-day rate to 1.85% from 1.95% Monday came ahead of the week-long nationwide break that begins Oct 1. The central bank typically offers fortnight-long loans ahead of extended breaks, previously doing so in February ahead of the week-long Lunar New Year break.
The last time officials cut the RRR came on the cusp of the Lunar New Year holiday, as they looked to smooth liquidity.
“A bigger package is needed” than Monday’s 10-basis-point trim, said ANZ Chief Greater China Economist Raymond Yeung. “Other policy measures in the tool box such as RRR cut, MLF cut and mortgage rate cut will likely be announced.”
--With assistance from Wenjin Lv, Iris Ouyang, Josh Xiao and Katia Dmitrieva.
(Updates with stock prices, Pan’s comments, detail about Tuesday’s briefing.)