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The Real Economy Receives Greater Policy Stimulus

The real economy receives greater policy stimulus
The real economy receives greater policy stimulus

The real economy receives greater policy stimulus

As policymakers consider lowering the deposit reserve ratio of financial institutions to introduce more funds into the market. China has increased policy support to stimulate real economic growth and help fragile small and private companies.

The executive meeting of the State Council chaired by Li Keqiang stated that the state will adopt monetary tools such as lowering the deposit reserve ratio to increase financial support for the real economy. Keqiang on Wednesday.

It was decided at the meeting that the RRR cut will be passed “in due course” in order to reduce the impact of rising commodity prices on business operations. Reiterate the policy stance of not large-scale stimulus, maintaining the stability of monetary policy, and improving effectiveness.

When Chinese policymakers decide to lower the deposit reserve ratio.

The country scheduled to release key economic data next week, including GDP in the second quarter. Which will reveal the outlook for the Chinese economy. Economists said that the mention of lowering the deposit reserve ratio at the State Council unexpected meeting. Because other major central banks are considering tightening monetary policy.

Fan Yifei, vice governor of the People’s Bank of China, said at a press conference on Thursday that the People’s Bank of China will continue to implement a prudent monetary policy.

The Chinese monetary authority will take advantage of the opportunity to reform the benchmark lending rate. Preferential lending rate to improve the regulation of deposit interest rates. Fan said that the actual loan interest rate of enterprises should be further reduced. Especially to promote low-cost financing for small and micro enterprises.

The State Council’s decision to reduce the service fees paid by market players expected to save 24 billion yuan ($3.7 billion). More than 16 billion yuan, for small and micro enterprises and private enterprises each year. Fan said that this measure will help improve the business environment and promote consumption.

Nomura Securities China Chief Economist Lu Ting said that Beijing’s overall policy solution to the soaring raw material prices. Includes using policy easing rather than policy tightening to curb the rise in commodity prices.

“The use of high-profile tools like RRR cuts surprised us and the market,” Lu said.

Lu predicts that the People’s Bank of China will achieve a 50-basis-point RRR cut in the coming weeks. While other economists, such as Peng Hong of ING Bank, expect the RRR cuts to be only for small and medium enterprises.

“While other major central banks are talking about raising interest rates and reducing timetables. This may surprise the market,” Pang said, referring to the reduction in asset purchases.

The US financial group Goldman Sachs predicts that the Fed may implement the first interest rate hike in the second half of 2023, and before that. It may formally announce a “reduction” policy as early as December this year.

Goldman Sachs chief China economist Shan Hui said on Thursday that the State Council’s signal of lowering the deposit reserve ratio may indicate the end of the cyclical tightening of credit and macroeconomic policies. The growth rate of total social financing and money supply may bottom out in the second quarter.

In the press conference, Shan said that the improvement in credit supply in the second half of the year may promote government-led investment. Which is the main force for maintaining economic growth in the coming months.

Simply put, in terms of policy interest rates, China is unlikely to adjust the interest rate level in 2021. The economist said that it is more appropriate to take targeted measures to balance the imbalance in economic recovery, rather than extensively changing monetary policy, and added that fiscal measures will strengthened to support the economy in the second half of the year.


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