China Stimulus Hopes Reignite as Financial Regulators Call Press Briefing

China's financial regulators, including its top central banker, will hold an ad-hoc press briefing on Tuesday, fueling expectations that Beijing could announce big-ticket stimulus measures to boost its ailing economy.

The unexpected event, announced Monday, is set to focus on financial support for the economy. Some economists think authorities could announce policy actions including cuts to policy rates or reductions to the amount of cash banks must hold as reserves, as well as more measures to address the property crisis.

Besides Pan Gongsheng, governor of the People's Bank of China, the Tuesday press conference will be attended by heads of the National Financial Regulatory Administration and the China Securities Regulatory Commission, suggesting that policy action to boost the stock market might be in the pipeline.

The briefing will shed light on financial regulators' policy stance, said Zhiwei Zhang, an economist at Pinpoint Asset Management.

The fiscal and monetary measures China has taken in recent months have yet to instill much confidence among consumers and investors that the recovery is on track. Indicators showed that economic momentum slowed across the board in August, generating concern that Beijing will miss its annual growth goal of around 5% unless it rolls out bolder stimulus.

Many analysts say the policy steps taken so far won't be enough to move the needle, and that more decisive fiscal support to engineer a meaningful rebound in the property market--a major drag on the overall economy--is needed.

Economists at Nomura think the central government's hand could eventually be forced as the property crisis continues.

In a recent note, they pointed to little progress in officials' efforts to turn China's vast stock of unsold properties into affordable housing. The central bank issued a CNY300 billion relending quota for local governments to buy properties but the funds have barely been used, and the issue of delayed home deliveries hasn't been effectively addressed, Nomura said.

As economic headwinds mount, "we expect Beijing will be eventually forced to serve as the builder of last resort," directly providing funding to delayed residential projects, the economists said. They also expect a trim to interest rates on existing mortgage loans.

Earlier on Monday, the Chinese central bank cut the 14-day reverse repurchase interest rate by 10 basis points to 1.85%, and injected 74.5 billion yuan, equivalent to $10.6 billion, of liquidity via the policy tool. Economists say the trim isn't a sign of further policy easing and is more a catchup to the reduction in the 7-day reverse repo rate in July when the PBOC didn't conduct a 14-day reverse repo operation.

While the big rate cut by the U.S. Federal Reserve this month sparked some hope that Chinese authorities will follow suit, worries around narrow profit margins among commercial lenders and weak borrowing demand suggest limited room for more monetary policy easing, analysts say.

Pinpoint's Zhang still expects the PBOC to cut the 7-day repo rate--China's main policy rate--as well as banks' reserve requirement ratio in the coming months.

Another opportunity to gauge China's policy stance will come as soon as Wednesday, when the central bank is set to announce the borrowing costs of its one-year policy loans.

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September 23, 2024 02:22 ET (06:22 GMT)

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