Stimulus won't be pared down despite recent uptick in recovery momentum
This undated photo shows the headquarters of the People's Bank of China in Beijing. (PHOTO / XINHUA)
The People's Bank of China, the country's central bank, assured the capital market on Wednesday that it will continue to beef up support for economic recovery and would not pare down stimulus measures despite the recent uptick in recovery momentum.
Experts said credit policies are likely to further ease with new structural tools set to be launched in the fourth quarter to consolidate the nascent recovery of the property market, while the central bank may prudently cut the reserve requirement ratio and interest rates if needed.
The PBOC said in a statement on Wednesday that it will continuously support the real economy and strengthen policy adjustments as the country's economic recovery is improving, but still faces a harsher external environment.
"Currently, the external environment is becoming more complex and severe, with a slowdown in the world economy as well as international trade and investment, still-high inflation and interest rates in developed countries that are expected to remain elevated," the PBOC said in its statement, following the third-quarter meeting of its monetary policy committee.
While the domestic economy continues to recover and improve with increasing momentum, it still faces challenges such as insufficient demand, the PBOC said in the statement.
"We need to provide continuous support, ride the uptick in economic momentum, intensify the strength of macroeconomic policy adjustments, ensure a precise and effective implementation of prudent monetary policy and make good use of counter-cyclical and cross-cyclical adjustments."
The phrase "counter-cyclical adjustments" was newly added as the statement issued after the second-quarter meeting in June did not contain it. Experts said this signals the PBOC's proactive gesture of continuing policy support for the country's improving recovery momentum, with retail sales accelerating and industrial profits improving in August.
"The (latest) statement shows that strengthening policy adjustments and promoting a sustained improvement in economic conditions are still the main policy tone," said Lou Feipeng, a researcher at Postal Savings Bank of China.
Compared with the second-quarter meeting statement, Wednesday's statement stood out for its stress on intensifying the implementation of the monetary policy tools that have been introduced recently and encouraging a rebound in price levels.
Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, said he particularly expects the PBOC to promote a relatively quick reduction in the interest rates of new mortgages, while new targeted monetary tools may be launched to support the real estate sector.
The central bank vowed to lower down payment thresholds as well as mortgage rates of second homes and to put in place a policy of reducing interest rates for existing first-home mortgages.
The central bank also gave hints about its future aggregate policy steps by saying that it will keep the level of liquidity reasonably ample, give full play to the guiding role of the central bank's policy interest rate and bring down the cost of financing for enterprises and households while keeping it generally stable.
"We think there remains the scope for cutting interest rates and the reserve requirement ratio in the remainder of the year," said Tao Chuan, chief macroeconomic analyst with Shanghai-listed Soochow Securities.
The PBOC may cut the RRR in November or December as a forward-looking move to accommodate fast credit expansion in January, while a small interest rate cut may be implemented sometime in the fourth quarter, Tao said.
"However, considering that it is still uncertain whether the US Federal Reserve will raise interest rates in November, the timing of a rate cut needs to be considered."
Some other experts are more cautious about the possibility of interest rate cuts in the fourth quarter, given the PBOC's emphasis on keeping the yuan stable amid an elevated interest rate differential between the United States and China that is weighing on the Chinese currency.
