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China’s central bank unveiled broad plans to guide money into sectors of national importance to boost the faltering economy this year, after making an unusual reserve requirement ratio announcement.
The People’s Bank of China surprised investors on Wednesday by revealing a bigger-than-expected RRR cut weeks in advance, providing markets with a needed boost. Economists see the central bank following up that move by steering credit into select areas, along with a handful of trims to the amount of cash banks must hold in reserve and modest policy-rate cuts.
“RRR cuts will likely be more infrequent going forward, and only used as a signal tool when markets are performing particularly poorly,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc.
“Structural tools will play an even bigger role.”
Goldman Sachs Group economists said Wednesday evening that they see the PBOC lowering rates in the first and third quarters, and deepening RRR cuts in the second and fourth quarters.
Governor Pan Gongsheng’s decision to personally announce the RRR cut, instead of waiting for state agencies to publicize it, came after a similar move by Premier Li Qiang. Earlier this month, China’s No. 2 official took the unusual step of revealing China’s GDP figure for 2023 before the statistics bureau.
Both moves show the emphasis top Communist Party figures are putting on boosting confidence. That reflects the urgency facing President Xi Jinping’s government to respond to calls for more aggressive stimulus as the economy grapples with a real estate slump, lingering deflation, shattered confidence and a $6 trillion stock market rout. Pan stressed policymakers will have more room to take action this year, citing signs of forthcoming easing by the Federal Reserve as one factor. The central bank chief mapped out ways to give financial support to key sectors.
The PBOC will set up a new credit market department to promote financing to technology, green and other sectors, he said. It’s also cutting the interest rate on more than 2 trillion yuan ($279 billion) of low-cost funds for banks – a move intended to encourage more lending to agriculture and small firms.
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