The People’s Bank of China (referred to as the “PBOC”) injected 234.6 billion yuan into the banking system on Monday, September 23. Furthermore, the heads of the PBOC and two other major financial institutions will hold a joint press conference on Tuesday to introduce financial policies. However, analysts believe that the PBOC’s space for implementing loose monetary policy is limited.
In the announcement, the PBOC stated that it injected 160.1 billion yuan through a seven-day reverse repurchase operation at a rate of 1.70% and 74.5 billion yuan through a 14-day reverse repurchase at a rate of 1.85%, which was reduced by 10 basis points.
The last time the PBOC conducted a 14-day reverse repurchase operation was on February 9 of this year, with a rate of 1.95%.
Analysts quoted by Reuters noted that this operation does not constitute a significant easing of policy. The PBOC typically uses reverse repurchase operations to assist the banking system in managing long holidays.
Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, commented, “I would not interpret this rate cut as a signal for the PBOC to further relax its monetary policy. However, I do expect the PBOC to further reduce the seven-day reverse repurchase rate and the deposit reserve ratio in the coming months.”
Wang Qing, Chief Macro Analyst at Orient Securities, stated that the adjustment in the 14-day reverse repurchase rate following the reduction in the 7-day rate is part of a coordinated policy rate adjustment, not a new interest rate cut.
He indicated that the recent large-scale reverse repurchase operations by the PBOC were mainly to offset the 591 billion yuan of MLF (Medium-term Lending Facility) maturing on September 15, as well as funding fluctuations related to tax payments, following a similar pattern from the previous month.
Moreover, Securities Times reported on Monday that the State Council Information Office will hold a press conference on Tuesday morning at 9:00, inviting PBOC Governor Pan Gongsheng, CBIRC Director Li Yunze, and CSRC Chairman Wu Qing to introduce the relevant financial support for economic development.
According to Dow Jones Newswires, this “unexpected” press conference was announced just on Monday. The Chinese government may announce a series of policy actions, including adjusting policy rates or reducing the bank reserve requirement ratio, as well as more measures aimed at resolving the real estate crisis.
PBOC Governor Pan Gongsheng’s public speech on Monday also indicated that the Chinese government will continue to adhere to loose monetary policy. He affirmed at the Second China-Portuguese Speaking Countries Central Bank and Financial Forum that the PBOC will continue to support an accommodative monetary policy stance and increase the intensity of monetary policy regulation.
However, due to the increasing operating pressures on Chinese commercial banks, the PBOC’s room for implementing loose monetary policy is limited.
Analysts quoted by Central News Agency pointed out that despite the recent substantial rate cuts by the Federal Reserve, leading to speculation that certain departments in China may follow suit, concerns over declining bank profit margins and weakened lending demand restrict the Chinese government’s space for further monetary policy loosening.
Voice of America reported that the Chinese economy is facing tight liquidity, a prolonged real estate crisis, surging debts, and subdued consumer and business sentiment. Despite a series of policies to stimulate consumption, economic growth remains lackluster.
Various indicators show a broad slowdown in economic growth in August, prompting concerns that without more aggressive stimulus measures, the Chinese government may not achieve its annual growth target of around 5%.
Global brokerage firms have adjusted their forecasts for China’s economic growth in 2024, with Goldman Sachs and Citigroup lowering their estimates to 4.7% and Morgan Stanley to 4.6%, all below the Chinese government’s target of around 5%.
Central News Agency reported that many analysts believe that the policy measures taken by Beijing so far are insufficient to reverse the trend and call for more decisive fiscal support measures to drive a substantial rebound in the real estate market.
Nomura economists noted in a research report that progress on turning a significant amount of unsold properties into affordable housing has been minimal. The PBOC provided 300 billion yuan to local governments to purchase unsold housing, but these funds have been underutilized, and the issue of delayed delivery has not been effectively addressed.