China leverages stimulus measures to steer economy

This photo taken on Oct. 19, 2023 shows the People's Bank of China in Beijing, capital of China. (Xinhua/Peng Ziyang)

* China's central bank on Friday cut the reserve requirement ratio (RRR) for financial institutions by 0.5 percentage points and lowered the seven-day reverse repo interest rate by 20 basis points, enhancing policy support to solidify economic operations.

* The simultaneous cuts to the RRR and policy rate reflect the central bank's determination to adhere to a supportive monetary policy with strengthened intensity and more targeted regulation, as well as its concrete efforts to help the country meet major annual economic and social development targets.

* The policy moves followed a crucial meeting convened by the Political Bureau of the Communist Party of China Central Committee on Thursday, which called for intensified efforts in economic work, including the implementation of substantial interest rate cuts and the promotion of the property market's stabilization.

BEIJING, Sept. 27 (Xinhua) -- China's central bank on Friday cut the reserve requirement ratio (RRR) for financial institutions by 0.5 percentage points and lowered the seven-day reverse repo interest rate by 20 basis points, enhancing policy support to solidify economic operations.

From Friday, the weighted average RRR for lenders will be approximately 6.6 percent, but those that have already implemented a 5 percent RRR will not be involved, according to a statement from the People's Bank of China.

The move followed an RRR cut of 0.5 percentage points in February. The 1-percentage-point RRR reduction so far this year is expected to provide about 2 trillion yuan (about 285.3 billion U.S. dollars) in long-term liquidity for the financial market.

The seven-day reverse repo interest rate, a key short-term policy rate, was lowered from 1.7 percent to 1.5 percent on Friday, according to the central bank. The decrease was the largest in nearly four years.

The move aims to intensify the counter-cyclical adjustment of monetary policy and support the country's stable economic growth, according to the central bank.

The seven-day reverse repo interest rate has fallen by a cumulative 30 basis points so far this year.

The simultaneous cuts to the RRR and policy rate reflect the central bank's determination to adhere to a supportive monetary policy with strengthened intensity and more targeted regulation, as well as its concrete efforts to help the country meet major annual economic and social development targets, experts have said.

China seeks to expand its economy by approximately 5 percent year on year in 2024. The country's GDP expanded by 5 percent in the first half of the year.

This photo taken with a mobile phone shows people watching a sand table model of a real estate project in east China's Shanghai, May 28, 2024. (Xinhua/Zheng Juntian)

The policy moves followed a crucial meeting convened by the Political Bureau of the Communist Party of China Central Committee on Thursday, which called for intensified efforts in economic work, including the implementation of substantial interest rate cuts and the promotion of the property market's stabilization.

It was noted at the meeting that the fundamentals of the Chinese economy remain unchanged, as do its favorable conditions, including a vast market, strong economic resilience and great potential.

However, the meeting said it is necessary to take a comprehensive, objective and sober view of the current economic situation, face the difficulties squarely, and remain confident.

The central bank's Friday announcement maintained policy intensity, consolidated the foundation for the stable, sustained development of the capital market, and provided sufficient impetus for healthy, upward market development, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance Company Limited.

China's stock market has been on an upward streak in recent days, with heavy trading fueled by the broader-than-expected policy package to prop up the economy.

The benchmark Shanghai Composite Index closed at 3,087.53 points on Friday, a 12.81 percent weekly gain. The Shenzhen Component Index soared 17.83 percent this week to close at 9,514.86 points.

On Friday alone, the combined turnover of the two indices neared 1.45 trillion yuan, surpassing the 1-trillion-yuan mark for a third consecutive day.

The ChiNext Index, which tracks China's Nasdaq-style board of growth enterprises, jumped 10 percent to close at 1,885.49 points on Friday.

On Tuesday, the country's central bank, top securities regulator and financial regulator announced a raft of monetary stimuli, property market supports and capital market strengthening measures to be implemented in the near future to boost the country's high-quality economic development.

These policy measures include an RRR reduction for banks and a mortgage rate reduction for existing homes, as well as the introduction of new monetary programs to boost the capital market.

Pan Gongsheng, governor of the central bank, said that the RRR may be lowered by a further 0.25 to 0.5 percentage points within the year, depending on the liquidity situation.

Job seekers talk with recruiting representatives at a job fair in Haikou, capital of south China's Hainan Province, July 20, 2024. (Xinhua/Guo Cheng)

The country unveiled a set of guidelines on Wednesday to promote sufficient high-quality employment, stressing the importance of promoting reasonable increases in remuneration for labor and expanding the coverage of social insurance.

Experts say they expect the implementation of the policy package to galvanize the economic rebound.

These recent policy measures, combined with more effective fiscal policy support, will help sustain the rebound in economic growth for the remainder of the year, UBS economist Wang Tao noted.

Liang Si, a researcher at the Bank of China's research institute, said the loan prime rates will likely be lowered following the seven-day reverse repo interest rate cut, which will reduce the financing costs of enterprises and the housing burden faced by residents.

When the decreased mortgage rates on existing home loans and the reduced minimum down payment ratio for second homes come into effect, the burden of residential mortgages will be eased and demand for housing will be boosted to contribute to the speedy recovery of the real estate market, Liang said.

The combination of monetary policy tools will increase financial support for the real economy, effectively boost market confidence and expectations, and create a sound monetary and financial environment for economic recovery, Dong said.