- Central bank highlights support to techology, green sectors
- It also pledges to expand domestic demand, boost confidence
China’s central bank vowed to step up existing monetary policy and stimulate consumer prices, which last month continued their slide, falling at the steepest pace in three years.
The People’s Bank of China vowed to implement a prudent monetary policy in targeted and effective manner and reaffirmed its pledge to push consumer prices higher, according to a statement Thursday following the bank’s quarterly monetary policy committee meeting.
The central bank said it will “promote price recovery from low levels and keep prices at reasonable levels.” It also strives “to expand domestic demand, boost confidence, and promote a virtuous economic cycle.”
Those pledges are a repeat of commitments in the third quarter following a regular meeting of the committee. The latest comments come as data showed China’s consumer prices falling in November and producer costs extending declines, underscoring the challenges facing the economic recovery.
“The main challenge for China’s economy in 2024 may be whether policies can mitigate deflation risks,” Tommy Xie, head of Greater China research at Oversea-Chinese Banking Corp., said in a note Friday.
“If deflation risks persist longer than expected in 2024, China may resort to more aggressive easing measures such as interest rate cuts or restarting the Pledged Supplementary Lending program to expand the central bank balance sheet to boost aggregate demand,” he added.
|Other commitments by the PBOC:
The latest comments indicate the PBOC may mainly use structural aid to target high-quality economic growth, according to a note by Sinolink Securities Co. on Friday. “The possibility of broad easing has declined in the short term,” analysts including Zhao Wei wrote.
In contrast to broad easing steps that benefit the entire economy — such as cuts to interest rates or banks’ required cash reserves — structural tools guide credit toward more targeted areas. The PBOC has elevated the role of such tools in recent years as it seeks to transition the economy away from debt-fueled growth especially from the property sector.
Re-lending programs are a main form of such tools, where the PBOC provides cheap funding to banks under the condition that they use the money to lend to desired firms, such as those developing green technology or those involved in completing unfinished housing projects. The central bank has said it would set up new programs when needed.
Another highly-anticipated tool is the so-called Pledged Supplemental Lending program to policy banks. Markets are watching closely whether the PBOC will use this low-cost funding to finance construction projects including affordable housing and the renovation of urban villages.
In recent months. the PBOC has stepped up liquidity injection to help banks buy up a deluge of government bonds issued to support infrastructure spending. That’s likely to continue as the central bank reaffirmed it will keep liquidity reasonably ample.
The large injection will help “dispel market expectations for further cuts to the reserve requirement ratio,” the Sinolink analysts said.
Written by: Bloomberg News — With assistance from John Liu, Yujing Liu, Foster Wong, and Evelyn Yu @Bloomberg
The post “PBOC Vows to Stimulate Consumer Prices Amid Deflation Fears” first appeared on Bloomberg.com
BullsNBears.com was founded to educate investors about the eight secular bear markets which have occurred in the US since 1802. The site publishes bear market investing recommendations, strategies and articles by its analysts and unaffiliated third-party and qualified expert contributors.
No Solicitation or Investment Advice: The material contained in this article or report is for informational purposes only and is not a solicitation for any action to be taken based upon such material. The material is not to be construed as an offer or a recommendation to buy or sell a security nor is it to be construed as investment advice. Additionally, the material accessible through this article or report does not constitute a representation that the investments or the investable markets described herein are suitable or appropriate for any person or entity.