China central bank sells cash deposits at record low, more easing seen

CHINA’S central bank sold cash deposits at 2 per cent, the lowest on record, pressured by reductions in deposit rates at commercial lenders and market expectations of more monetary easing.

The People’s Bank of China (PBOC) sold 60 billion yuan (S$11.1 billion) worth of finance ministry one-month deposits 75 basis points lower than the previous auction in May.

“(Commercial banks’) deposit rates have been lowered again in the past two months ... the key is that markets expect further monetary policy easing,” a bond trader said.

China’s commercial lenders have lowered interest rates on yuan deposits in June, a move that eases pressure on borrowing costs, providing some relief for the financial sector and wider economy.

The lower auction rate also comes after monetary authorities ramped up efforts to lower lending rates to revive credit demand and prop up growth in the world’s second-largest economy.

Earlier on Monday (Jul 24), the state-owned China Securities Journal cited economists saying they see ample room to manoeuvre monetary policy and expect the authorities to flexibly use tools including the lowering reserve requirement ratio and interest rates as economic conditions change.

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“In the case of insufficient demand, there will be problems with the effectiveness of monetary policy,” the newspaper quoted Yu Yongding, an influential government economist who previously advised the PBOC as saying.

“The most acute problem now is insufficient demand or insufficient effective demand. In this case, it is necessary to further loosen monetary policy and further improve the monetary policy transmission mechanism,” Yu said. REUTERS