The People’s Bank of China (PBoC) takes measures to stimulate its economy
26 SEPT, 2024
By Jose Luis Palmer from RankiaPro Europe
The People's Bank of China (PBoC) has implemented a broad-based easing of its key monetary policies, signalling a possible further easing in the fourth quarter. In addition, together with the regulatory authorities, it introduced measures to support the housing market, reducing the down payment for second homes and establishing a new RMB 500 billion facility that will allow institutions to swap equity assets for bonds and central bank bills.
These actions, while positive for improving consumer confidence, do not seem sufficient to fully reverse China's economic slowdown. According to Guillaume Tresca, senior emerging markets strategist at Generali AM, additional fiscal stimulus is needed to revive private demand. These fiscal measures are expected to come in October or November, when the authorities will define the size and form of the stimulus.
These measures go in the right direction and should help to bolster consumer confidence. However, they are unlikely to be enough to turn the Chinese economy around completely, as fiscal measures are needed to revive private demand.
Guillaume Tresca, senior emerging markets strategist at Generali AM
Initial market reaction has been favourable, with the yuan temporarily falling below 7.0 against the dollar, driven by the liquidation of long positions in USD/CNH options. However, analysts remain cautious about a rapid appreciation of the yuan, especially against the backdrop of the US elections and the structural problems of the Chinese economy.
As for the bond market, the response has been subdued, with a slight fall in rates, especially at the short end of the curve, suggesting that there is still room for further easing in the medium term.
Overall, although the PBoC's measures are a step in the right direction, analysts agree that only a more comprehensive approach, including fiscal measures, can have a significant impact on the Chinese economy.
Monetary easing must be accompanied by fiscal easing to boost disposable income. [...]The package does not seem firm enough to turn around the Chinese economy and housing market.
Guillaume Tresca, senior emerging markets strategist at Generali AM
