(Bloomberg) — China cut the amount of cash banks must keep in reserve at the central bank in an effort to support lending and strengthen the economy’s recovery from pandemic restrictions and a property market slump.
The People’s Bank of China reduced the reserve requirement ratio for almost all banks by 0.25 percentage points, effective from March 27, it said in a statement on Friday. The PBOC last cut the RRR in December, by the same magnitude.
Economists said the cut was aimed at ensuring liquidity in the banking system to sustain the rapid pace of lending seen in January and February.
China’s consumer spending and investment rebounded in the first two months of the year after pandemic restrictions were dropped in December, according to recent official data. But the recovery remains uncertain, with unemployment still elevated, property investment continuing to contract and falling exports dragging on industrial output.
Read More: China Reports Economy Rebound But Warns of Risks to Recovery
“It seems that the central bank is not going to slow the pace of credit growth as people feared,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd.
The timing of the cut could be due to concerns that credit growth could slump in April, following the completion of financing for a number of government-led investment projects early this year, Xing added.
The yuan pared an advance of as much as 0.6%, trading 0.1% stronger at 6.89 in the onshore market after the PBOC’s move.
What Bloomberg Economics Says…
The PBOC’s move “highlights an easing bias — we expect an interest-rate cut to follow and see the PBOC trimming the required reserve ratio further this year.”
It’s estimated the RRR cut “will release 500 billion yuan in long-term cash to the banking sector.”
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David Qu, China economist
The PBOC said the cut in the reserve ratio was aimed at maintaining “reasonable and sufficient liquidity” and ensuring that money supply increases in line with nominal economic growth. The central bank added it won’t engage in “flood irrigation,” a term it uses to refer to large stimulus.
The average reserve rate of financial institutions will be 7.6% following the cut, the PBOC said. The cut will not apply to banks whose reserve rate is 5%, it added.
The cut “is about topping up the lending capacity of banks, after strong long-term corporate loans and local government bond issuance to fund infrastructure and manufacturing investment in January-February,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
Beijing has set a moderate gross domestic product growth target of around 5% for this year, and signaled it will rely on a recovery in consumer spending to reach that goal while avoiding large-scale monetary and fiscal stimulus.
Huang Yuhang, a fund manager at Lanqern Capital Management Co., said the PBOC’s move was likely less to do with fears about banking stress, “but rather the recovery seems to need a bit of help, judging by the economic figures this week.” Huang added that “the key impediment to the recovery is demand still being weak, as confidence for incomes is still fragile.”
PBOC Governor Yi Gang, who was recently reappointed to his post, said at a press conference this month that current interest rates were appropriate. He added that cuts to the reserve ratio could be an “effective tool” to support the real economy.
While the current economic recovery means that there is less need for an interest rate cut, the PBOC could cut the RRR by a further 0.25-0.75 percentage points this year, said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc.
“The probability of a further cut is relatively high in the middle of the year when liquidity tends to tighten” and in the fourth quarter, he said.
–With assistance from Yujing Liu, Chester Yung and April Ma.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
