In a bid to counteract its slowing economy, China’s central bank, the People’s Bank of China (PBOC), has taken a decisive step. On Monday, the bank announced a reduction in the 14-day reverse repurchase interest rate by 10 basis points, bringing it down to 1.85 percent from 1.95 percent. Simultaneously, they injected 74.5 billion yuan ($10.6 billion) into the system through this policy tool.
To further enhance liquidity, the PBOC also pumped an additional 160.1 billion yuan through a 7-day reserve repo agreement, keeping the interest rate at 1.7 percent. This action comes just ahead of the seven-day National Day Holiday beginning on October 1. It’s common for the Chinese central bank to provide 14-day loans before extended breaks, as was done in February leading up to the Lunar New Year.
This latest move follows a series of indicators suggesting China’s economic growth is facing challenges. Disappointing August data has fuelled concerns about the country potentially missing its 5% annual growth target. With these concerns in mind, the PBOC has signaled its intent to implement additional measures to support the economy.
The timing of the rate cut, just before a rare press briefing by PBOC governor Pan Gongsheng and two other officials on Tuesday, has fueled speculation that authorities are preparing to take more aggressive steps to revive growth.
Experts have weighed in on the recent developments. Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, believes the rate cut is a “catch-up” measure following a 10-basis-point cut in the 7-day rate in July. Zhang expects further easing, including a reduction in the 7-day repo rate and the reserve requirement ratio in the coming months.
Raymond Yeung, ANZ Chief Greater China Economist, is less optimistic, stating that “a 10bp cut alone is not sufficient to arrest the falling economic momentum.” He calls for a more comprehensive approach, suggesting that other policy tools such as reductions in the reserve requirement ratio (RRR), medium-term lending facility (MLF), and mortgage rates should be considered.
China has an opportunity to further lower the cost of its one-year policy loans on Wednesday. These recent actions and the upcoming press briefing suggest that China is actively seeking ways to counter its economic slowdown and provide the necessary support for sustainable growth.
