In a significant move to bolster its struggling economy, China’s central bank has unveiled a sweeping set of policy measures aimed at achieving the country’s annual growth target of about 5 per cent.
The People’s Bank of China (PBOC) governor Pan Gongsheng announced a series of cuts, including lowering the amount of money banks must hold in reserve to its lowest level since at least 2020 and reducing a key policy rate. This marks the first time in at least a decade that both measures were slashed on the same day, highlighting the urgency of stimulating growth, reports Bloomberg.
Additionally, a comprehensive package of support for the property market was revealed, including lowering borrowing costs on mortgages and easing rules for second-home purchases. The PBOC will also allow funds and brokers to access its funds for stock purchases.
Market response and economic challenges
While financial markets responded positively to the policy measures, with the CSI 300 Index rising and the yuan remaining stable, economists remain cautious. They question whether these actions can address the underlying issues plaguing the world’s second-largest economy, such as weak consumer demand and persistent deflation.
President Xi Jinping’s government has been trying to stimulate the economy without resorting to large-scale stimulus packages, but so far, these efforts have proven ineffective. The Federal Reserve’s recent rate cut provided some breathing room for Asian central banks, and Pan’s decisive move sets the stage for further fiscal support from the finance ministry.
Concerns and outlook
Despite the breadth of the policy package, concerns persist. Analysts like ANZ’s Raymond Yeung remain sceptical about the effectiveness of the measures, particularly in revitalizing the property market.
The PBOC governor’s announcement came at his first high-profile press conference since March, where he defended the government’s growth target. Pan’s transparent approach to policy this year aims to stabilize sentiment.
While monetary policy easing has surpassed expectations, bolder actions may be required in the coming quarters, says Bloomberg.
