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@CBankingEditor - China Banking News
1/12 The Chinese central bank is unleashing an arsenal of monetary policy measures to deal with Trump-induced economic turmoil. The goals are also to drive Chinese technological innovation and boost lacklustre domestic consumption. A thread (🧵):
@CBankingEditor - China Banking News
2/12 Pan Gongsheng (潘功胜), the governor of the People’s Bank of China (PBOC) - China’s central bank - said the authority would launch 10 key monetary policy measures in the wake of the economic uncertainty unleashed by Donald Trump’s Liberation Day tariffs.
@CBankingEditor - China Banking News
3/12 Pan made the announcement at a press conference held by China’s State Council on 7 May, on the topic of “a raft of financial policies to support stable markets and stable expectations” (一揽子金融政策支持稳市场稳预期).
@CBankingEditor - China Banking News
4/12 The 10 measures run the gamut of monetary policy tools employed by the Chinese central bank, falling under the three categories of: 1. Quantitative policy. 2. Price policy. 3. Structured policy.
@CBankingEditor - China Banking News
5/12 Quantitative policy PBOC’s quantitative policy primarily involves the use of cuts to the required reserve ratio - determining the volume of deposits that commercial banks need to stow with the Chinese central bank. The higher the required reserve ratio, the fewer loans banks can make, while the lower it is, the greater their license to extend credit.
@CBankingEditor - China Banking News
6/12 Out of the 10 monetary policy measures outlined, two fall under the category of quantitative policy: - A 0.5 percentage point cut to the required reserve ratio, which is expected to unleash around 1 trillion yuan in long-term liquidity for the market. - Targeted cuts to the ratio for specific types of financial companies, with the goal of increasing purchases of durable goods.
@CBankingEditor - China Banking News
7/12 Pricing policy For PBOC, pricing policy mainly involves the use of reductions to its policy rates - which are the interest rates for the 7-day reverse repos and medium-term lending facilities (MLF) that serve as the main tools for its open market operations (OMO). Thanks for reading Sign up for free updates read by the World Bank and J.P. Morgan: http://www.chinabankingnews.com. Access a 50% discount on premium subscriptions: https://www.chinabankingnews.com/p/access-critical-intelligence-on-chinas
@CBankingEditor - China Banking News
8/12 Pan said three of PBOC’s ten measures would involve the use of monetary policy pricing. - A 0.1 percentage point reduction to PBOC’s policy rate. This in practice means reducing the rate for PBOC’s 7-day reverse repos from 1.5% to 1.4%. PBOC expects the move to drive a 0.1 percentage to the benchmark Loan Prime Rate (LPR). - A larger 0.25 percentage points reduction to the rates for structured monetary policy tools. - The rate on individual home loans made by China’s provident fund will also be reduced by 0.25%.
@CBankingEditor - China Banking News
9/12 Structured policy This will involve improvements to existing structured monetary policy tools that PBOC uses to direct credit to specific areas of the economy.
@CBankingEditor - China Banking News
10/12 It will also involve the creation of new policy tools, with the specific goal of supporting scientific and technological innovation, expanding consumption and shoring up financial access.
@CBankingEditor - China Banking News
11/12 Pan highlighted a total of five measures under the remit of structured policy: - A 300 billion yuan increase in the re-loan quota for science and technology innovations and technological upgrades. This will bring the quota from 500 billion yuan to 800 billion yuan. - The launch of a 500 billion yuan “services consumption and aged-care re-loan." - Increasing the re-loan quota to support agriculture and small enterprise by 300 billion yuan. - Optimisation of two existing monetary policy tools for supporting China’s capital markets. - The launch of a new bond risk sharing instrument to support science and technology innovation.
@CBankingEditor - China Banking News
12/12 Access the full briefing here: https://www.chinabankingnews.com/p/chinas-central-bank-fires-ten-arrows
