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PR Newswire
15-10-2014, 08:02 AM
China’s central bank again moves to ease lending costs
THE WALL STREET JOURNAL OCTOBER 15, 2014 8:27AM
CHINA’S central bank cut short-term borrowing costs for banks for the second time in less than a month, a sign that Beijing is under increased pressure to ease monetary conditions to combat a slowing economy.
Analysts say the reductions are likely to have only limited effect, so authorities could have to turn to more-powerful tools, such as lowering benchmark interest rates or reducing the proportion of deposits banks must hold as reserves at the central bank, if the economy deteriorates further.
A cut in the so-called reserve requirement would leave banks with more money to lend.
In a routine money-market operation, the People’s Bank of China cut the interest rate on 14-day repurchase agreements, a kind of short-term loan to commercial lenders, by 0.10 percentage points to 3.40 per cent yesterday. This followed a move on September 18 to lower the rate by 0.20 percentage points to 3.50 per cent.
“It shows that the central bank is under rather strong pressure to ease monetary policy as it seems like the government still considers financing costs in the economy too high,” said Gu Ying, interest-rate strategist at JPMorgan Chase.
The People’s Bank’s move came a week before China is scheduled to release major macroeconomic data for the third quarter and September. A survey of 15 economists by The Wall Street Journal indicates they believe China’s gross domestic product expanded 7.2 per cent in the latest quarter from a year earlier, slowing from a 7.5 per cent increase in the second quarter, as the pivotal real-estate sector remains depressed.
China is scheduled to release today inflation figures for September. Economists expect the figures to show a 1.7 per cent increase in the consumer-price index, slower than the 2 per cent rise in August, the poll indicates.
“While inflation may have come down, real interest rates remain elevated and the PBOC is clearly feeling the pressure,” said Mr Gu.
Although the latest repo-rate cut has raised hopes of broader monetary easing, the move came after a series of targeted, modest easing measures Beijing has deployed in recent months to help small businesses and public housing, Sue Trinh, a strategist with Royal Bank of Canada, wrote in a research note.
Analysts have said China has so far been reluctant to use more-powerful policy tools because lowering rates more broadly could prompt people and companies to take on more debt, adding to the risks the country’s financial institutions already face.
“The PBOC is indeed in a bind and is constantly balancing the need to protect growth against that to restructure the economy,” said Mr Gu, adding that if China’s economy keeps weakening, a policy-rate cut would likely be on the cards.
“Fine-tuning measures like cutting the repo rate mostly have a stronger effect on market sentiment. The spillover impact on the real economy is limited, because interest rates in China aren’t fully liberalised yet,” Mr Gu said.
THE WALL STREET JOURNAL OCTOBER 15, 2014 8:27AM
CHINA’S central bank cut short-term borrowing costs for banks for the second time in less than a month, a sign that Beijing is under increased pressure to ease monetary conditions to combat a slowing economy.
Analysts say the reductions are likely to have only limited effect, so authorities could have to turn to more-powerful tools, such as lowering benchmark interest rates or reducing the proportion of deposits banks must hold as reserves at the central bank, if the economy deteriorates further.
A cut in the so-called reserve requirement would leave banks with more money to lend.
In a routine money-market operation, the People’s Bank of China cut the interest rate on 14-day repurchase agreements, a kind of short-term loan to commercial lenders, by 0.10 percentage points to 3.40 per cent yesterday. This followed a move on September 18 to lower the rate by 0.20 percentage points to 3.50 per cent.
“It shows that the central bank is under rather strong pressure to ease monetary policy as it seems like the government still considers financing costs in the economy too high,” said Gu Ying, interest-rate strategist at JPMorgan Chase.
The People’s Bank’s move came a week before China is scheduled to release major macroeconomic data for the third quarter and September. A survey of 15 economists by The Wall Street Journal indicates they believe China’s gross domestic product expanded 7.2 per cent in the latest quarter from a year earlier, slowing from a 7.5 per cent increase in the second quarter, as the pivotal real-estate sector remains depressed.
China is scheduled to release today inflation figures for September. Economists expect the figures to show a 1.7 per cent increase in the consumer-price index, slower than the 2 per cent rise in August, the poll indicates.
“While inflation may have come down, real interest rates remain elevated and the PBOC is clearly feeling the pressure,” said Mr Gu.
Although the latest repo-rate cut has raised hopes of broader monetary easing, the move came after a series of targeted, modest easing measures Beijing has deployed in recent months to help small businesses and public housing, Sue Trinh, a strategist with Royal Bank of Canada, wrote in a research note.
Analysts have said China has so far been reluctant to use more-powerful policy tools because lowering rates more broadly could prompt people and companies to take on more debt, adding to the risks the country’s financial institutions already face.
“The PBOC is indeed in a bind and is constantly balancing the need to protect growth against that to restructure the economy,” said Mr Gu, adding that if China’s economy keeps weakening, a policy-rate cut would likely be on the cards.
“Fine-tuning measures like cutting the repo rate mostly have a stronger effect on market sentiment. The spillover impact on the real economy is limited, because interest rates in China aren’t fully liberalised yet,” Mr Gu said.