Tuesday, 28 September, 2021
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China likely to quicken fiscal spending

China likely to quicken fiscal spending

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SHANGHAI: China is likely to accelerate fiscal spending and credit growth as its economic recovery slows, but investors are expecting any easing measures from Beijing to be finely targeted as the US Federal Reserve prepares to taper its own stimulus.

Market participants are increasing their bets that the People’s Bank of China (PBOC) will once again reduce banks’ reserve requirement ratio (RRR) to make up for liquidity shortfalls towards the year-end, report agencies.

At the same time, market yields are low enough that few expect a policy rate cut which would widen the Sino-US monetary stance gap, risking a surge in capital outflows. “If some infrastructure projects have to rely on the issuance of local government bonds, then the government should have an intention to lower bond yields,” said Iris Pang, Greater China economist at ING said.

She expects a 50-basis-point RRR cut in the fourth quarter. The PBOC last cut RRR in July. Recent economic data has showed the world’s second-largest economy is losing steam and facing more pressure in the second half. Investors increasingly expect local governments to boost the pace of bond financing to support credit growth and revive activity.