In September 2024, China unveiled a comprehensive stimulus package aimed at revitalizing its struggling economy. Key components of this initiative include cuts to the reserve requirement ratio for banks and reductions in mortgage interest rates, designed to enhance liquidity and stimulate consumer spending . With the Chinese economy grappling with challenges such as a prolonged property sector debt crisis and high youth unemployment rates, these measures are critical in promoting investment and consumption . The government’s efforts reflect an understanding of the urgent need to stabilize economic conditions.
People's Bank of China (PBOC) Governor Pan Gongsheng announced plans to lower borrowing costs and allow banks to increase their lending.
The move comes after a series of disappointing data has increased expectations in recent months that the world's second largest economy will miss its own 5% growth target this year.
Stock markets in Asia jumped after Mr Pan's announcement.
Lynn Song, chief economist for greater China ING, called the repo rate cut announcement "the most important" move made during the press conference.
"Markets had been leaning toward expecting multiple 10bp rate cuts, so a 20bp cut represents a slightly stronger than expected move," he said in a note on Tuesday. "However, the net impact will depend on whether we see further cuts ahead or whether the PBOC falls into a wait-and-see mindset after today's policy package."
The RRR cut was more a move to boost sentiment, since the challenge is not banks lacking the funds to lend, but limited demand for borrowing, Song added.
At a minimum, he added, "broader direct household support in helping them consume more goods will be useful, which is currently just too narrowly designed for industrial goods".
Li Yunze, minister of the National Financial Regulatory Administration, said at Tuesday's press conference that the slowdown of property market sales has made it difficult for real estate companies to deliver houses on schedule.
The administration, which expands upon the banking regulator's responsibilities, was created last year as part of Beijing's overhaul of its financial regulatory system.
In January, China launched a whitelist for determining which real estate projects to support first. Li said that more than 5,700 such projects have been approved, with financing totaling 1.43 trillion yuan ($200 billion). That's allowed more than 4 million homes to be completed, he said.
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