Economy
China cuts medium-term loan rates as economy sputters, more easing expected
China’s central bank cut the borrowing cost of its medium-term policy loans for the first time in 10 months on Thursday, in line with expectations, as Beijing ramps up stimulus measures to shore up a shaky economic recovery.
The move comes just days after it lowered two key short-term policy rates, a sign that authorities are increasingly concerned about the economy’s fragility despite the dismantling of tough COVID measures in December. Activity data to be released later on Thursday morning was expected to point to further weakness.
The cuts could also pave the way for reductions in China’s benchmark lending rates when they are set next Tuesday. Data this week showed a sharp slowdown in broad credit growth in May.
The People’s Bank of China (PBOC) said it lowered the rate on 237 billion yuan ($33.09 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.65%, from 2.75% previously.
In a Reuters poll of 33 market watchers conducted this week, all respondents predicted a cut to the MLF rate, with 94% of them expected a 10-basis-point cut.
Recent data has shown China’s recovery is stalling as domestic and global demand falters and the crisis-hit property sector fails to gain traction, raising expectations that authorities need to do more to spur growth and keep a lid on unemployment.
“Policy stimulus expectations have jumped, and the market wants to see changes in fiscal and credit policies next,” said analysts at BNP Paribas, adding that policy easing can be expected given slowing exports, the struggling property sector and shaky local government finances.
But analysts say policymakers in Beijing may be wary of unleashing more aggressive stimulus measures while other global central banks are raising interest rates to combat inflation, which could risk further capital outflows from China. Its yuan currency has already lost nearly 4% so far this year, skidding to six-month lows.
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“In the next nine months… we now expect the central bank to continue its monetary easing cycle with an additional 30 bps policy rate cuts in total, 50 bps of RRR cuts and 60-80 bps of mortgage rate cuts for both new and existing home loans,” economists at Barclays said in a note.
Goldman Sachs said an expected cut in banks’ reserve requirement ratio may be postponed to the third quarter, as historically the central bank has almost never cut the policy rate and reserve ratio within the same month.
With 200 billion yuan ($27.93 billion) worth of MLF loans set to expire this month, Thursday’s operation resulted in a net 37 billion yuan ($5.17 billion) of fresh fund injection into the banking system.
The central bank also injected 2 billion yuan ($279.14 million) through seven-day reverse repos at 1.9%, it said in an online statement.
($1 = 7.1615 Chinese yuan renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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