Chinese stocks rose sharply on Tuesday amid announced central bank measures designed to stem a deterioration in the economic outlook and market sentiment, Chinese media reported.
The measures announced include boosting bank lending, lowering the cost of borrowing up to $5.3 trillion on mortgages, and allowing funds and brokers to use central bank funds to buy stocks.
People’s Bank of China Governor Pan Gongsheng said the People’s Bank of China will reduce by 50 basis points the amount of cash that banks must hold as reserves – known as reserve requirement ratios (RRR). The People’s Bank of China will also cut its key rate by 0.2 percentage points to 1.5 per cent.
Interest rates on existing mortgages will also be cut by an average of 0.5 percentage points, Pan said, which may bring some relief to households but could raise concerns about banks’ profitability. Pan did not specify when the measures would take effect. Gary Ng, senior economist at Natixis, said:
The move probably comes a bit too late, but it is better late than never. With an elevated real interest rate, poor sentiment and no rebound in the property market, China needs a lower-rate environment to boost confidence.
Julian Evans-Pritchard, head of China economics at Capital Economics, said the measures represent “the most significant stimulus package since the early days of the pandemic.”
The People’s Bank of China will allow commercial banks to use 100 per cent of its 300 billion yuan concessional credit line to fund loans they offer to state-owned companies to buy unsold flats as affordable housing, up from 60 per cent now.
As well as using special purpose bonds to buy unused land, it will consider allowing state-owned and commercial banks to lend to good quality corporations to buy land from property developers. The People’s Bank of China will also provide repeat loans “if necessary.”
