BEIJING, Sept 24 (Askume) – China’s central bank announced massive monetary stimulus and asset market support measures on Monday to revive an economy that is facing strong deflationary pressure and at risk of missing its growth target this year.
The central bank will increase the cash held in reserve by banks, known as the deposit reserve ratio (RRR), and lower it by 50 basis points, Governor Pan Gongsheng and officials from two other financial regulatory agencies said at a press conference.
The People’s Bank of China also reduced the 7-day repo rate by 0.2 percentage points to 1.5%. Deposit and other interest rates will also be reduced.
Existing mortgage rates will also be cut by an average of 0.5%, Pan said, a move that could provide some relief to households but raise concerns about banks’ profitability.
Pan did not clarify when the measures would take effect.
China’s economy grew less than expected in the second quarter due to the real estate crisis and consumer concerns about job security. August economic data came in well below expectations, increasing the need for more support from policymakers.
“The move may be a bit late, but it’s better late than never,” said Gary Ng, senior economist at Natixis.
“With high real interest rates, poor market sentiment and no improvement in the real estate market, China needs a low-interest rate environment to boost confidence.”
The Chinese government aims for economic growth of around 5.0% in 2024, but some investment banks, including Goldman Sachs , Nomura, UBS and Bank of America, have recently lowered their forecasts for China’s economic growth this year.
Stock markets (.CSI300) and (.SSEC) rose, and the onshore yuan opened at its strongest level since May 2023.
China’s benchmark 10-year bond yield fell 4 basis points to 2.036%, close to last week’s record low, while 30-year bond futures for December delivery hit a record high.
Pan said there would be further monetary policy easing later this year, including another cut in the deposit reserve ratio.
These latest policy measures from China come after the Federal Reserve cut interest rates last week
