China stimulus hopes rise as PBOC cuts rate, plans briefing

CHINA announced plans for a rare briefing on the economy by three top financial regulators just as it cut one of its short-term policy rates, fuelling speculation authorities are preparing to ramp up efforts to revive growth.

Authorities announced on Monday (Sep 23) that central bank governor Pan Gongsheng will hold a press conference the next day on financial support for economic development, alongside two other officials. Minutes later, the People’s Bank of China (PBOC) lowered the 14-day reverse repurchase rate, as part of reductions initiated in July.

Taken together, the moves bolster expectations for the PBOC to lower rates, after the US Federal Reserve finally started cutting last week.

China’s central bank also recently signalled that it was preparing additional policies. A slew of disappointing data in August raised concerns that China could miss its annual growth target of around 5 per cent without more support.

The yield on China’s 10-year government bonds fell one basis point to a fresh low of 2.03 per cent, a sign that traders are pricing in more monetary stimulus. In the foreign exchange market, the PBOC raised its daily reference rate for the yuan to 7.0531 per US dollar, putting the key seven level in sight.

While Monday’s reduction reflected a catch-up with a 10-basis-point (bp) July cut in the seven-day rate, easing measures were likely imminent, said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

“I do expect PBOC will cut seven-day repo rate as well as the reserve requirement ratio (RRR) in the coming months,” he added. “There is a press conference tomorrow when the financial regulators will shed light on their policy stance.”

China has another chance to lower the cost of its one-year policy loans on Wednesday. In July, the PBOC cut the seven-day reverse repo rate days before it slashed the medium-term lending facility (MLF) by the most since April 2020.

The decision to lower the 14-day rate to 1.85 per cent from 1.95 per cent came ahead of the National Day Holiday that will last seven days from Oct 1. The PBOC typically offers 14-day loans ahead of long break. The last time it provided such lending was in February ahead of the week-long Chinese New Year break.

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The central bank also injected 74.5 billion yuan (S$13.6 billion) of liquidity into the banking system via the tool, it said.

“A 10 bp cut alone is not sufficient to arrest the falling economic momentum,” said ANZ chief Greater China economist Raymond Yeung. “A bigger package is needed. Other policy measures in the tool box such as RRR cut, MLF cut and mortgage rate cut will likely be announced.”