According to insiders familiar with the matter, the government of Chinese President Xi Jinping is reportedly under pressure to boost the country’s economy, leading Beijing to consider a comprehensive package of stimulus measures, as reported by Bloomberg.
Earlier this month, Bloomberg cited sources stating that China was planning a series of measures to support the struggling property market, as existing policies had failed to sustain a rebound. The sources, speaking anonymously, mentioned that the measures were aimed at supporting sectors such as real estate and domestic demand, and could include interest-rate reductions and support for the real estate market.
One source revealed that regulators were seeking to lower costs on existing residential mortgages and increase re-lending through policy banks to ensure the delivery of homes.
Meanwhile, Reuters reported that China’s central bank had reduced short-term borrowing costs in an effort to restore confidence, which could signal potential easing of longer-term rates.
The plan for stimulus measures is not yet finalized, but the State Council may discuss the policies as early as Friday, with possible amendments during the discussion.
Larry Hu, the head of China economics at Macquarie Group Ltd, stated that the rate cut indicated a shift towards a more supportive stance from Beijing. Hu emphasized that policy was crucial in boosting weak consumer and business confidence in the economy.
In May, China’s new bank loans increased compared to the previous month, supported by accommodating policies from the central bank. However, signs of slowing momentum have raised expectations for additional stimulus to sustain the recovery.
Analysts suggest that the weaker-than-expected credit data could strengthen the case for policymakers to introduce more supportive measures, including a cut in the benchmark lending rate this month.
Data from the People’s Bank of China showed that new bank lending reached $190.18 billion in May, higher than April but falling short of analysts’ estimates. Economists had anticipated new yuan loans to reach 1.6 trillion yuan in May, compared to 718.8 billion yuan in April and 1.89 trillion yuan in the same period last year.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, noted that credit growth was weak, consistent with other economic indicators such as the Purchasing Managers’ Index (PMI) and exports. Zhang expected more policy actions to follow in the coming weeks, considering the recent rate cut as a small step in the right direction.
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