China’s Central Bank Introduces Comprehensive Easing Measures to Stimulate Economy, Reports Reuters

By Ryan Woo and Liangping Gao

BEIJING – China’s central bank has introduced extensive monetary stimulus measures and support for the property market as the economy faces significant deflationary pressures and risks failing to meet this year’s growth targets.

Governor Pan Gongsheng, during a news conference with officials from two other financial regulatory bodies, announced a 50 basis point reduction in the reserve requirement ratios (RRR), which dictate the amount of cash banks must hold as reserves.

Additionally, the People’s Bank of China will decrease the seven-day repo rate by 0.2 percentage points to 1.5%, with subsequent reductions expected in deposit and other interest rates. Existing mortgage interest rates will also see an average reduction of 0.5 percentage points, which may offer some relief to households but could raise concerns about the profitability of banks.

No specific timeline for these measures was provided.

The economy’s growth in the second quarter was considerably slower than anticipated, largely due to an ongoing property crisis and consumer anxieties regarding job security. Economic data for August also fell short of expectations, necessitating more aggressive supportive actions from policymakers.

Gary Ng, senior economist at Natixis, remarked, "The move probably comes a bit too late, but it is better late than never. With elevated real interest rates, low consumer sentiment, and no recovery in the property sector, China needs to lower rates to restore confidence."

While the government targets around 5.0% economic growth for 2024, several investment banks including Goldman Sachs, Nomura, UBS, and Bank of America have recently lowered their growth forecasts for China this year.

In reaction to the announcements, stock prices rose, and the market opened at its highest level since May 2023. The yield on China’s benchmark 10-year government bond fell by 4 basis points to 2.036%, nearing last week’s record low, while 30-year treasury futures for December delivery reached a new high.

Governor Pan also indicated that further monetary easing, including another RRR reduction, is likely later this year. These policy measures from China follow a significant rate cut by the U.S. Federal Reserve last week, which many analysts believe provides the People’s Bank of China with greater leeway to ease monetary conditions without significantly impacting the yuan.