China is struggling to speed up its economy in the wake of the corona pandemic, and on Monday the central bank steps in with new stimulus. The People’s Bank of China (PBOC) is injecting a net 289 billion yuan ($39.6 billion) via a 1-year lending facility, in the biggest stimulus to the interbank system since December 2020.
At the same time, it drew a net 134 billion yuan in short-term liquidity through open market operations.
Steer towards 5 percent this year?
Furthermore, the interest rate on the expected one-year loan facility (MLF) was kept unchanged at 2.50 per cent. The interest rate forms the floor for China’s reference interest rate (loan prime rate), which will be announced next Friday.
The measures come as Beijing considers a new round of stimulus to help the economy reach its official target for GDP growth of around 5 percent annually. The Ministry of Finance issued 1.2 trillion yuan worth of government bonds in September, 60 percent above the average for the same period over the past three years, figures from Bloomberg.
GDP growth in China was 6.3 per cent on an annual basis in the second quarter, up from 4.5 per cent in the first quarter. Forecasts from the International Monetary Fund (IMF) last week pointed towards GDP growth on target in 2023, that is 5.0 per cent.
The billion packages are in the queue
Additional liquidity is on the way, including a 1 trillion yuan program to help regional governments refinance hidden debt – a risk Beijing is keen to reduce. The hidden debt, which originates from loans regional authorities take out “off the books” to plug funding gaps in the budgets, rose sharply during the pandemic. The loans have a shorter repayment period and much higher interest rates than in the bond market.
Beijing is also considering an additional issuance of government bonds of at least 1,000 billion yuan earmarked for infrastructure, as the news agency has mentioned previously.
– The PBOC may lower the one-year MLF interest rate by the end of the year, and the expectation is that Chinese interest rates will stay “lower for longer” because growth is likely to be weak during the current transition period, says macro strategist for China, Becky Liu, at Standard Chartered Bank .
2023-10-16 08:39:11
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