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- Jun 9, 2016
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China announced a suite of new heavyweight policies to boost the economy on Tuesday, including cuts to the mortgage rate for existing housing and its reserve requirement ratio, while it also planned to roll-out new tools to support the stock market.
The reserve requirement ratio (RRR) – the amount of cash that commercial banks must hold as reserves – and the mortgage rate for existing housing would be cut by half a percentage point, according to People’s Bank of China governor Pan Gongsheng.
The PBOC would support the acquisition of real estate companies’ lands by studying measures to allow policy and commercial banks to grant loans to eligible companies to acquire the land, revitalise the stock of the land and ease the financial pressure on real estate enterprises.
If necessary, the central bank may provide policy support, Pan added.
“The reduction in existing mortgage interest rates is expected to benefit 50 million households or 150 million people, reducing household interest expenses by an average of about 150 billion yuan per year, which will efficiently boost consumption and investment,” Pan said during a joint press conference alongside Li Yunze, minister of the National Administration of Financial Regulation, and Wu Qing, chairman of the China Securities Regulatory Commission.
The Hang Seng Index in Hong Kong jumped 2.5 per cent on Tuesday morning, while the Hang Seng Tech Index gained 3 per cent.
The Shanghai Composite Index, meanwhile, added 1.5 per cent following the announcements.
Pan said the seven-day reverse repo rate would also be lowered from 1.7 per cent to 1.5 per cent, which could effectively lower medium-term lending facility by 0.3 percentage point and the loan prime rate by between 0.2 and 0.25 percentage point.
The central bank governor also said that the PBOC would guide a smooth rate transmission to ensure stable net interest margins (NIM) for commercial banks, in an attempt to address analysts’ concerns that the rate cut could hurt commercial banks’ NIM.
China is also “studying” a state-backed stabilisation fund, which could shore up confidence in its equity markets, Pan added.
Policymakers intended the new measures to support the development of China’s economy, to promote modest price increases, strike a balance between economic growth and the sustainability of banking sector and maintain the yuan exchange rate at a reasonable equilibrium level, Pan added.
Li from the National Administration of Financial Regulation, meanwhile, said the authorities planned to increase core tier 1 capital for China’s six large commercial banks in a gradual manner.
Tuesday’s announcements came after rising calls to arrest weakening economic momentum in China.
Mainly dragged by a prolonged property crisis, the world’s second-largest economy has yet to show an obvious rebound in growth, with domestic consumption remaining depressed and trade frictions with the West on the rise.
The cut to the RRR is expected to provide liquidity of about 1 trillion yuan (US$141 billion) into the market, according to Pan.
Pan said with the RRR for the banking sector around 6.6 per cent, the PBOC still had more room to cut compared to the international level, and that the central bank may lower the rate by a quarter or half a percentage point by the end of the year.
As part of the new monetary tools to support stock market, specialised refinancing facilities would be created to guide banks to provide loans to listed companies and major shareholders to support buy-backs and stock increases.
Earlier this month, President Xi Jinping subtly toned down China’s focus on achieving its annual economic growth goals this year, including the “around 5 per cent” target for China’s gross domestic product, from “must remain firmly committed” to “strive to fulfil”.
Last week, the US Federal Reserve kicked off a rate-cutting cycle, which eased the room for monetary policies in China.
“There is a clearer direction for monetary policy easing, but this alone is certainly inadequate,” said Zhu Tian, an economics professor with the China Europe International Business School in Shanghai.
“The key is helping the market build a stronger expectation that monetary policies will continue to be eased in the future and that more support is on the way.
“Such market expectation and confidence are still rather weak. In addition, fiscal policy, in particular, more expenditure and borrowings by the central government, must also be strengthened in tandem to solve the liquidity woes facing local governments and developers, as well as the various businesses whose profitability is also impeded.”
The reserve requirement ratio (RRR) – the amount of cash that commercial banks must hold as reserves – and the mortgage rate for existing housing would be cut by half a percentage point, according to People’s Bank of China governor Pan Gongsheng.
The PBOC would support the acquisition of real estate companies’ lands by studying measures to allow policy and commercial banks to grant loans to eligible companies to acquire the land, revitalise the stock of the land and ease the financial pressure on real estate enterprises.
If necessary, the central bank may provide policy support, Pan added.
“The reduction in existing mortgage interest rates is expected to benefit 50 million households or 150 million people, reducing household interest expenses by an average of about 150 billion yuan per year, which will efficiently boost consumption and investment,” Pan said during a joint press conference alongside Li Yunze, minister of the National Administration of Financial Regulation, and Wu Qing, chairman of the China Securities Regulatory Commission.
The Hang Seng Index in Hong Kong jumped 2.5 per cent on Tuesday morning, while the Hang Seng Tech Index gained 3 per cent.
The Shanghai Composite Index, meanwhile, added 1.5 per cent following the announcements.
Pan said the seven-day reverse repo rate would also be lowered from 1.7 per cent to 1.5 per cent, which could effectively lower medium-term lending facility by 0.3 percentage point and the loan prime rate by between 0.2 and 0.25 percentage point.
The central bank governor also said that the PBOC would guide a smooth rate transmission to ensure stable net interest margins (NIM) for commercial banks, in an attempt to address analysts’ concerns that the rate cut could hurt commercial banks’ NIM.
China is also “studying” a state-backed stabilisation fund, which could shore up confidence in its equity markets, Pan added.
Policymakers intended the new measures to support the development of China’s economy, to promote modest price increases, strike a balance between economic growth and the sustainability of banking sector and maintain the yuan exchange rate at a reasonable equilibrium level, Pan added.
Li from the National Administration of Financial Regulation, meanwhile, said the authorities planned to increase core tier 1 capital for China’s six large commercial banks in a gradual manner.
Tuesday’s announcements came after rising calls to arrest weakening economic momentum in China.
Mainly dragged by a prolonged property crisis, the world’s second-largest economy has yet to show an obvious rebound in growth, with domestic consumption remaining depressed and trade frictions with the West on the rise.
The cut to the RRR is expected to provide liquidity of about 1 trillion yuan (US$141 billion) into the market, according to Pan.
Pan said with the RRR for the banking sector around 6.6 per cent, the PBOC still had more room to cut compared to the international level, and that the central bank may lower the rate by a quarter or half a percentage point by the end of the year.
As part of the new monetary tools to support stock market, specialised refinancing facilities would be created to guide banks to provide loans to listed companies and major shareholders to support buy-backs and stock increases.
Earlier this month, President Xi Jinping subtly toned down China’s focus on achieving its annual economic growth goals this year, including the “around 5 per cent” target for China’s gross domestic product, from “must remain firmly committed” to “strive to fulfil”.
Last week, the US Federal Reserve kicked off a rate-cutting cycle, which eased the room for monetary policies in China.
“There is a clearer direction for monetary policy easing, but this alone is certainly inadequate,” said Zhu Tian, an economics professor with the China Europe International Business School in Shanghai.
“The key is helping the market build a stronger expectation that monetary policies will continue to be eased in the future and that more support is on the way.
“Such market expectation and confidence are still rather weak. In addition, fiscal policy, in particular, more expenditure and borrowings by the central government, must also be strengthened in tandem to solve the liquidity woes facing local governments and developers, as well as the various businesses whose profitability is also impeded.”
