Bloomberg Beijing
China’s central bank, the People’s Bank of China, has joined its European counterpart in boosting liquidity to address weakening growth.
It is injecting 500 billion yuan (R889bn) into China’s five largest banks, according to a government official familiar with the matter, signalling the deepest concern yet with an economic slowdown.
Economists forecast US Federal Reserve chairwoman Janet Yellen will announce another $10 billion (R109bn) cut to its monthly bond purchases at this week’s meeting, as she steers toward gradual rate increases.
China’s credit expansion builds on targeted measures to shore up growth while stopping short of the broad stimulus seen in the US in the wake of the financial crisis and still being used in Europe and Japan.
By attaching a three-month term to its injection, China is taking a step down that path while maintaining control of a process designed to fuel demand for credit in an already debt-laden economy.
“It’s
like quantitative easing with Chinese characteristics,” said Louis Kuijs, Royal Bank of Scotland’s chief greater China economist in Hong Kong. “The threat is that growth is slowing down below the comfort level of policymakers and that will then also warrant further easing steps.”
The bank would funnel 100 billion yuan to each bank for three months, said the official, who asked not to be named because the measure had not been officially announced.
“It shows China’s monetary policy is leaning toward easing, and the easing stance may last throughout next year,” said Hua Changchun, a China economist at Nomura Holdings in Hong Kong. The lack of an official announcement showed that the central bank “doesn’t want to send a strong signal” of policy easing, Hua said.
The Sina.com website earlier reported the injection and the central bank did not respond to faxed questions.
Bank stocks rallied in Hong Kong, the yuan halted a four-day slide and one-year interest-rate swaps dropped to the lowest level since June.
Not all analysts saw the move as policy stimulus.
Chang Jian, the chief China economist at Barclays in Hong Kong, said it was “a normal liquidity operation”.
The injection was “mainly aimed at providing liquidity to pre-empt potential liquidity shortages in the banking system in the coming weeks,” Chang wrote. Cash needs for the coming National Day holiday, along with initial public offerings of stock, were among the reasons she cited.
The weakest expansion in industrial output since the crisis and moderating investment and retail sales growth shown in data released on Saturday underscored risks of a deepening economic slowdown. Those readings followed a second consecutive drop in imports and a 40 percent decline in the broadest measure of new credit for August, as well as signs of a manufacturing pullback.
The injection marked “the first clear policy response to weak August data” on the economy, Goldman Sachs economists wrote in a research note.
Further steps might include accelerating planned fiscal spending, they wrote. They estimated that the 500 billion yuan extension of funds through the standing lending facility was equivalent to a half percentage-point cut in the reserve ratio, though such moves tended to have a larger impact.
The five banks are Industrial & Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of China and Bank of Communications. Their press officers declined comment.
Earlier this month
European Central Bank president Mario Draghi announced a final round of interest-rate cuts and a plan to buy privately owned securities as he sought to revive inflation.
Bank of Japan governor Haruhiko Kuroda assured his prime minister this month that he would do what was needed to achieve the government’s inflation target.