Home Credit report China leads way for easing as PBOC removes sentences in new report

China leads way for easing as PBOC removes sentences in new report


People walk past the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing, China, September 28, 2018.

Jason Lee | Reuters

BEIJING – China’s central bank deleted several sentences on the policy restriction in a quarterly report, a move economists say could be a sign that recovery is on the way.

The People’s Bank of China has maintained its roughly modified monetary policy since China got rid of the worst of the pandemic impact last year. Economic growth has slowed in recent months amid regulatory crackdown in the real estate sector, power shortages in factories and poor consumer spending.

The PBOC’s third quarter monetary policy report released on Friday night left out a reference to how the central bank would not engage in a large-scale flood-like stimulus. It’s a phrase that indicates political restraint and has appeared in central government statements since at least 2019, before the pandemic.

“In our view, these cuts represent an official change in PBoC policy and set the stage for more decisive monetary and credit easing,” Ting Lu, chief China economist at Nomura, said on Sunday in a report. . He noted that China is experiencing its worst economic downturn since 2015, excluding the initial outbreak of the Covid-19 pandemic.

Lu reported other cuts, including one on money supply controls – a measure of cash and other easily usable currencies. The increase in the money supply generally stimulates spending in the economy.

The removed reference to money supply was first made in a report in November 2020, as the central bank was set to end pandemic-era stimulus measures, economist Larry Hu said on Sunday. chief of China at Macquarie, in a note.

“This time, deleting the set of sentences[s] the stage for an acceleration of monetary easing, ”Hu said.

In a section on keeping monetary policy flexible and focused, the PBOC also deleted a reference to maintaining “normal” monetary policy.

Hu said the PBOC has become more cautious about the outlook for inflation. Although a caption of the latest central bank report still describes the pressure from rising prices as “controllable,” the authors removed a reference to the fact that there was no basis for inflation or long-term deflation.

Little change on property borders

Even with these signals, economists expect Beijing to move stealthily.

The PBOC on Monday kept its key rate unchanged for the 19th consecutive month since April 2020.

“I don’t think there is a major change in monetary policy,” Bruce Pang, head of macro and policy research at China Renaissance, said in Chinese, according to a CNBC translation.

Instead, removing those rather “absolute” statements gives policymakers more room for future operations, Pang said, noting that policymakers haven’t used the phrases much in the past month or so. .

We believe the worst for the real estate market and for the overall economy is yet to come, and it is only then (perhaps spring 2022) that we will see real changes in real estate restrictions. .

Ting Lu

Chief Economist for China, Nomura

Despite growing concerns about the economic slowdown, the PBOC has maintained its strict stance in the real estate market – which, along with related industries, accounts for about a quarter of China’s economy.

Industry giant China Evergrande has teetered on the brink of default in recent months following Beijing’s efforts to reduce the reliance of real estate developers on high debt levels for growth.

The central bank said in Friday’s report that risks in the real estate market remain manageable and that the overall healthy development of the industry will not change.

“We believe the worst for the housing market and for the overall economy is yet to come, and it is only then (perhaps spring 2022) that we will see real changes in restrictions. real estate, ”said Lu de Nomura.