Sunday, 5 December, 2021
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China’s central bank signals easing

China’s central bank signals easing

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BEIJING: China’s central bank has signalled possible easing measures to aid the economy’s recovery after a sharp downturn in recent months fuelled by a property slump.

In its latest quarterly monetary policy report published last Friday, the People’s Bank of China removed from its policy outlook a few key phrases cited in previous reports, including sticking with “normal monetary policy”. That suggests a shift in stance towards more supportive measures, several major banks like Citigroup, Nomura and Goldman Sachs said, report agencies.

The report dropped previous phrases to “control the valve on money supply” and vowing not to “flood the economy with stimulus”, signalling more credit support in coming months. “We expect Beijing to soon significantly step up its monetary easing and fiscal stimulus to counteract the increasing downward pressure,” Nomura’s Lu Ting wrote in a Nov 21 note.

China’s CSI 300 Index gained as much as 0.5 per cent on Monday morning on expectations of potential loosening, while the 10-year government bond futures contracts gained as much as 0.3 per cent.

The PBOC’s more dovish outlook follows growing concerns about the economy’s outlook flagged by several officials recently. Premier Li Keqiang told a seminar on Friday that China still faces “many challenges” in keeping the economy stable, although this year’s goals will likely be achieved. Liu Shijin, who sits on the central bank’s monetary policy committee, said in an online forum on Nov 21 that the economy could enter a period of “quasi-stagflation”, which needs close attention if it happens.

“The concern for growth slowdown is clearly rising among technocrats at different government agencies,” said Macquarie’s Larry Hu. “But the key is whether the top leaders share such a view.”

The Politburo meeting in December and Communist Party’s Central Economic Work Conference due in the same month will provide more clues, he said.

Growth could weaken to below 5 per cent next year, according to some forecasts, testing authorities’ resolve to cut the economy’s reliance on the highly leveraged property sector. In the quarterly report, the PBOC said the economic recovery faces restrictions from “temporary, structural and cyclical factors” and it has become more difficult to maintain a stable economy.

Any easing steps would likely be targeted towards small businesses and green finance, according to economists, similar to measures the PBOC has already taken in recent weeks, including 200 billion yuan (S$42.7 billion) of financing for coal projects announced last week. It is also likely to allow credit growth to accelerate next year, according to Guotai Junan analysts led by Qin Han.

Goldman Sachs’ Hui Shan and colleagues said policy interest rates were likely to remain unchanged, while Nomura’s Lu said the chance of a reduction in the reserve requirement ratio will rise in coming months.