China is stepping up its efforts to boost its economy by making loans cheaper and increasing liquidity. In a rare move, the country’s top three financial regulators will come together for a press conference, signaling the seriousness of the situation. This comes after a series of interest rate cuts, with the latest aimed at providing financial support ahead of the country’s National Day holidays.
Loan Rate Cuts Signal Urgent Action
The People’s Bank of China (PBOC) has cut the 14-day reverse repurchase rate from 1.95% to 1.85%. This latest cut is part of a broader push by the central bank to inject more cash into the financial system. In total, the PBOC has added 74.5 billion yuan (approximately $10.6 billion) to the banking sector, marking a continued effort to stabilize economic growth.
This series of rate cuts began in July, with the central bank slashing the seven-day reverse repo rate. In recent weeks, China also made its biggest medium-term lending facility (MLF) cut since 2020, further indicating that more easing measures may be on the way.
Government Bond Yields Fall, Stimulus Expected
The yield on 10-year Chinese government bonds dropped to 2.03%, a sign that traders are expecting further stimulus measures to come. In the foreign exchange market, the yuan was set at 7.0531 yuan per US dollar, reflecting the need to support the weakening currency.
China has struggled to meet its 2023 growth target of around 5%, with disappointing economic data in August raising concerns. Economists predict that without additional support, China may fall short of its goal. More relief measures, including further interest rate cuts, are widely expected to help boost the slowing economy.
Possible Moves Ahead: What Economists Predict
Several economists believe that the current rate cuts, while helpful, may not be enough to address China’s economic challenges. Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management, noted that the recent cuts are likely the beginning of more extensive measures. He believes that the People’s Bank of China will soon reduce the seven-day repo rate further and lower reserve requirements for banks.
Raymond Yeung, Chief Greater China Economist at ANZ, echoed similar sentiments, pointing out that the 10-basis-point reduction in interest rates is insufficient to halt the slowdown. He believes that China needs a much larger stimulus package, including further reductions in the Reserve Requirement Ratio (RRR) and mortgage rates.
What to Expect From the Regulators’ Press Conference
On Tuesday, China’s financial regulators, including the central bank governor, are scheduled to hold a press conference. This joint appearance is an unusual step and shows the urgency of the situation. Economists will be watching closely for potential announcements related to additional rate cuts and economic relief measures.
This press conference will offer more clarity on how the government plans to tackle the current economic slowdown and whether larger stimulus packages are on the horizon.
