Central bank injects more liquidity
China’s central bank injected further liquidity into the financial sector on Sept 17, a measure to ease investors’ concerns about economic downside risks in the fourth quarter due to uncertainties arising from escalating China-US trade tensions, and to boost investment.
A total of 265 billion yuan ($38.6 billion; 33.1 billion euros; £29.4 billion) of funds was released through the medium-term lending facility, according to the People’s Bank of China, the central bank. Financial institutions can borrow the money, using securities as collateral, at a 3.3 percent interest rate for one year.
It followed last week’s injection of 330 billion yuan into the market via reverse repos, an open market operation. Signals showed that policymakers have changed their monetary policy status in the second half, as a too-tight financing environment after strengthened regulation may hurt the market’s investment initiative, says experts.
Some of them expect a further cut in the reserve requirement ratio, or the cash amount that should be deposited in financial institutions, may take effect after the US Federal Reserve’s possible rate hike next week.
“The August activity data was generally soft, though not as weak as July’s. It will likely keep policymakers on high alert and encourage a continued loosening bias,” says Song Yu, an economist with Beijing Gao Hua Securities Co, Goldman Sachs’ joint venture in China.
“This bias has shown its effects in the stabilization of total social financing growth in July and August, but not yet enough to offset weaker export growth and reaccelerate domestic activity.”
The past weekend’s media reports were full of discussion on measures to improve China’s domestic structural reforms and to ease pressure on the external environment, when many officials and senior experts gathered in Beijing and shared various opinions at a high-level forum.
Some economists expressed concern about the faster-than-expected retreat of broad money supply, or M2.
According to data from the central bank, the growth of broad money supply was 8.2 percent in August, down from 8.5 percent in July, almost back to its lowest level since 1986.
The recent weaker-than-expected financial data showed gloomy demand and private investment deterioration, said Zheng Xinli, former deputy director of the Communist Party of China Central Committee’s Policy Research Office.
Experts say the relatively vague policy direction for the coming months has fueled the market’s confusion and weakened investors’ confidence on the country’s economic outlook, especially when uncertainties are rising amid escalating trade tensions.
JPMorgan’s latest forecast for the next year’s economic growth may slow to 6.2 percent, compared with this year’s 6.6 percent, Zhu Haibin, the US financial group’s chief economist in China, said on Sept 17 in Beijing.
The annual GDP target in 2019 is likely to slip to 6 to 6.5 percent, compared with “around 6.5 percent” written in this year’s Government Work Report.