The People’s Bank of China (PBOC) building in Beijing, China on Tuesday, April 18, 2023.
Bloomberg | getty images
China’s top leadership surprised the market on Monday by signaling a change in its monetary policy stance after 14 years, showing that the economic challenges facing the country are quite serious, yet a major stimulus is unlikely, according to experts. Is.
China is considering changing its policy stance from “prudent” to “moderately loose” next year – a phrase they did not use Since the depth of the global financial crisis in 2008When he relaxed his stance and stuck to it till 2010.
Larry Hu, Macquarie’s chief economist, said it is the first time that the current leadership has acknowledged that monetary policy should be loose, setting the stage for “a new monetary easing cycle.”
“Such a tone shows that policymakers are deeply concerned about the economic outlook, given sluggish domestic demand and the threat of another trade war,” Hu said.
Despite a flurry of stimulus measures since late September, recent economic indicators showed the world’s second-largest economy is still grappling with deflationary pressures amid a slump in consumer demand and a prolonged housing slump.
“Potential monetary easing relaxations are much more limited (now) than they were 15 years ago,” said Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank, which during this period saw “more than 50 basis points of policy rate cuts.” Let’s hope for the next two years.
policy change
The Chinese government has announced a “historically large monetary stimulus in response to the global financial crisis,” said Gabriel Wildau, managing director of Teneo.
was near beijing Announced 4 trillion yuan ($586 billion) package in November 2008 – which was approximately 13% of China’s GDP at that time – To sustain development and reduce its impact The worst global economic recession in more than 70 years,
When the authorities adopted a “moderately loose” policy stance in 2008, the People’s Bank of China Cut its benchmark 1-year lending rate by a total of 156 basis points Ming Ming, a former official in the PBOC monetary policy department, said the cash reserve ratio increased by 1.5 percentage points during the easing cycle. State-supported media economic observers,
Last month, China unveiled a five-year stimulus package total 10 trillion yuan Deal with local government debt problems, while also signaling that there will be more funding next year. Ting Lu, Nomura’s chief China economist, said in October that this amounts to about 2.5% of China’s annual GDP.
Economists at Morgan Stanley said the debt swap program needed to be significantly expanded to offset local government financial vehicle debt, which was about half the size of the country’s GDP.
Morgan Stanley expects the central government’s fiscal deficit to widen by 1.4 percent next year as the government borrows more to prop up the economy. China has set its central government deficit target at 3% this year.
PBOC odds
PBOC is cutting Key interest rates have been on the rise since late September, after the US Federal Reserve began its easing cycle with a massive 50-basis-point cut in mid-September.
US Fed rate cut offers scope for China Reduce your home borrowing costs Without a sharp decline in the Chinese yuan. However, the PBOC has stopped short of making more aggressive rate cuts over concerns of potential capital flight if the gap between Chinese rates and those elsewhere widens.
Preserving growth momentum would be a higher priority than stabilizing the exchange rate.
bruce pang
Chief Economist, Greater China, JLL
The tone of Monday’s Politburo meeting reinforced market expectations that the PBOC will cut key interest rates by 40 to 50 basis points to 1% by the end of 2025, said Xu Wang, head of Greater China FX and rates strategy at BNP. Will make it closer. Paribas said in a note on Tuesday.
Bets are on further rate cuts promoted a long rally Among Chinese government bonds, the benchmark 10-year yield pushed the yield to a record low on Tuesday.
While monetary easing could put depreciation pressure on the Chinese yuan, Bruce Pang, chief economist for Greater China at JLL, told CNBC, “Securing the pace of (economic) growth will be a higher priority than stabilizing the exchange rate.” “
Pang expects the central bank to cut the reserve requirement ratio, or RRR, a key lever to adjust liquidity within a month.
not ‘bazooka’
UBS’s Wang said more details on Beijing’s macro policy plans will emerge at the annual Economic Work Conference, which is reportedly underway and ends on Thursday.
Details of most major policy targets and stimulus measures will only be announced at the National People’s Congress next March, he said.
Investors and economists are especially looking forward to the implementation of any concrete policy on additional fiscal support and direct consumption stimulus.
Wildau said the strong language on Monday does not indicate that “bazooka-style stimulus will arrive immediately,” which would allow top leaders to consider new stimulus measures “in an incremental, data-dependent fashion, while keeping some ammunition in reserve.” Let’s see to implement. In response to potential US tariffs next year.
Reviving domestic consumption is a top priority for policymakers, Wang said, with the government projected to more than double its trade-in program to more than 300 billion yuan to stimulate domestic spending.
China did in July Announced the allocation of 300 billion yuan Ultra-long special government bonds ($41.5 billion) to support trade-in and equipment upgrade policy, to boost consumer demand.
Beyond the trade-in program, the current fiscal stimulus package has placed little emphasis on boosting consumption, which is key to getting the economy growing again, Sunny Liu, chief economist at Oxford Economics, said in a note on Wednesday. Emphasized that China will continue to face deflation. pressure in the near future
CNBC’s Evelyn Cheng contributed to this report.
