Policy package set to put nation’s economy on ‘more favorable growth trajectory’

China’s top financial regulators, in a move that went beyond market expectations, unveiled a potent combination of monetary easing measures on Sept 24, aimed at anchoring market confidence and underpinning economic recovery amid domestic and global headwinds.

The forceful one-two punch, including cutting the reserve requirement ratio, key policy interest rates and existing mortgage loan interest rates, will foster a more enabling climate for the world’s second-largest economy to hit the growth target for this year, analysts said.

“Recent macroeconomic data pointing to a tepid recovery in domestic consumption and weak inflationary pressures have created space for policymakers to ramp up efforts to bolster the economy,” said Ming Ming, chief economist at CITIC Securities.

The policy package will put the economy on a “more favorable growth trajectory”, he said.

Pan Gongsheng, governor of the People’s Bank of China, the nation’s central bank, said at a news conference on Sept 24 that the reserve requirement ratio — the amount of cash that banks are required to have on hand — will be reduced by 0.5 percentage point in the near term, which will free up about 1 trillion yuan ($142.2 billion) for new lending.

This marks the second time that the central bank has lowered the RRR this year, after implementing a 0.5 percentage point reduction in February, indicating that Chinese policymakers are proactively tapping into the policy space provided by the US Federal Reserve’s interest rate cut last week, experts said.

Following the latest reduction, the average reserve ratio for the banking sector will drop to around 6.6 percent. This level still leaves considerable flexibility to further lower the RRR if needed, when compared with other major global economies, Pan said.

The central bank also announced a reduction in its seven-day reverse repo rate — the short-term policy benchmark of interest rates — by 0.2 percentage point, from the current 1.7 percent to 1.5 percent.

This move is expected to drive down the medium-term lending facility rate by around 0.3 percentage point, with the loan prime rates also projected to follow suit, declining by 0.2 to 0.25 percentage point, Pan added.

A set of policies aimed at stabilizing the real estate market was also unveiled at the press conference, including a 0.5 percentage point reduction in average existing mortgage rates and lowering the minimum down payment ratio to 15 percent, from the current 25 percent, on second homes.

Guan Tao, global chief economist at BOCI China, said the policy package on Sept 24 was more comprehensive than expected, boosting market confidence about achieving the economic growth target of about 5 percent for the year.

Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, said the policies will provide much-needed support to homeowners by alleviating their debt burden and helping to boost consumption.

Afterwards the renminbi rallied to its strongest level in more than a year and Chinese equities continued their rebound.

Economists, investment banks and asset managers said that policymakers’ more decisive stance to shore up the economy, a global interest rate cut cycle, and low asset valuations have combined to make it a potentially good time to invest in Chinese financial assets, which are expected to attract more foreign inflow in the months ahead.

Contact the writers at wangkeju@chinadaily.com.cn