Key Points:
1.Eased monetary policy with rate cuts and reduced reserve requirements.
2.Increased fiscal spending on infrastructure projects.
3.Support for the property sector through tax breaks and relaxed mortgage rules.
China, moving to energize its sagging economy, Monday unveiled an all encompassing stimulus package amid growing skepticism over the feasibility of its growth target this year.
The People’s Bank of China said Tuesday that the central bank would cut borrowing costs, add liquidity into the financial system and defer some mortgage repayments for households. The central bank will cut the RRR of banks by 0.5 percentage points, said Pan Gongsheng, PBOC governor, in remarks that analysts estimated would add about 1 trillion yuan into the economy.
Further cuts to the RRR in the second half may also be on the table, depending on liquidity conditions, in a range of between 0.25 to 0.5 percentage points,” he said. It also lowered the seven-day reverse repurchase rate a tool that helps manage monetary policy by 0.2 percentage points.
The governor also spoke of moves to shore up the ailing property sector, including lower interest rates for existing mortgages. Chinese equities posted their largest gain since February 2022 following these announcements.
Julian Evans Pritchard, senior China economist at Capital Economics, said that these measures, though a step in the right direction, were not enough alone to turn the current downturn in economic activity around without more fiscal support.
The 2024 growth target in China of about 5 percent is shrouded with an unabated crisis in the real estate market, deflationary forces, high unemployment among youth, and increasing debt by local administrations. In June, the municipal government in Beijing took such moves as the reduction of mortgage interest rates and revised minimum down payments to stabilize the property market.
The economy of China grew last year at 5.2 percent, its weakest in decades.
