China – PBoC’s big stimulus
Today’s policy package by the PBoC is probably the broadest in a while, ranging from interest rate cuts to supporting the property sector and the stock market.
Tommy Wu
Commerzbank Economic Research
09/24/2024
Monetary measures could help buy time for Chinese policymakers to resolve the deep-seated structural problems. But ultimately, these problems can only be resolved by the government doing the right policies and reforms.
A mix of measures
The PBoC announced a policy mix to support the economy, rescue the property market, and shore up the stock market.
Countercyclical measures
- The 7-day reverse repo rate, which is now the main policy rate, will be cut by 20 basis points (bp) to 1.5%. This will lead to the medium-term lending facility (MLF) rate to be cut by 30bp to 2%. The two cuts will likely to be announced tomorrow (25 September). This will further lead to a cut in banks’ loan prime rates (LPRs) and deposit rates by 20-25 bp.
- The reserve requirement ratios (RRRs) for large- and medium-sized banks were cut by 50 basis points to 9.5% and 6.5% respectively. The RRR for small banks was kept unchanged at 5%, which is considered as a floor by the PBoC. The RRR cut will release CNY1 trillion (USD 142 billion) in liquidity. It is possible that RRRs could be cut by another 25-50bp by year-end.
Property support measures
- Interest rates on outstanding mortgage loans will be lowered by around 50bp on average. Mortgage rate cuts so far this year have benefited new homeowners but not the existing ones. Existing mortgages carried an average interest rate of about 4% as of August, compared with a record low of 3.2% on first home new mortgages and 3.5% for second home new mortgages, according to some private estimates. The minimum mortgage down-payment ratio on second home purchases will also be lowered from 25% to 15% which is the same as the ratio on first home purchases.
- The PBoC will improve the existing CNY300 billion re-lending program for state-owned enterprises (SOEs) to acquire unsold property inventories. It will now provide 100% of the principal of bank loans for such purchases, up from 60% announced in May. Previously, for a CNY100 million loan from a bank to a SOE, for example, CNY60 million would come from the PBoC and CNY40 million would come from the bank itself. After the change, the entire loan can be funded by the PBoC. The re-lending rate is at 1.75% for funds from the PBoC to banks making such loans to SOEs.
For full text see attached PDF-Version.
