China’s central bank cuts rates and eases policy to boost property sector

Stay informed with free updates

Simply sign up to the Chinese economy myFT Digest — delivered directly to your inbox.

China’s central bank has cut its benchmark interest rate as part of a broad set of easing measures to boost the world’s second-largest economy as it risks missing growth targets this year.

People’s Bank of China governor Pan Gongsheng on Tuesday said the short-term seven-day reverse repo rate, the central bank’s main policy rate, would be reduced from 1.7 per cent to 1.5 per cent.

The PBoC will also cut the reserve requirement ratio, the amount lenders must keep in reserves, by 0.5 percentage points, he said, while signalling a further potential cut of 0.25 to 0.5 percentage points this year. The RRR cut would add Rmb1tn ($142bn) in liquidity to the banking system, he said.

In addition to the monetary easing, the PBoC also announced government funding to boost the stock market and aid share buybacks, as well as extra support for China’s stricken property sector.

China’s blue-chip CSI 300 index of Shanghai- and Shenzhen-listed shares rose 2.4 per cent on Tuesday. Hong Kong’s Hang Seng index rose 3.3 per cent, led higher by mainland Chinese companies listed in the territory.

Pan said the measures aimed to “support the stable growth of China’s economy” and “promote a moderate rebound in prices”.

China’s economic growth has decelerated in recent months as a prolonged slowdown in the property sector has weighed on consumer sentiment and curbed spending.

Economists have slashed their growth forecasts to less than the government’s official target of about 5 per cent for 2024 as deflationary forces have proven persistent, with producer prices declining since last year.

Policymakers have turned to exports in the hope that the housing crisis will bottom out, but robust shipments of electric vehicles, batteries and other goods have not been enough to fully offset the weaker domestic economy.

“The Chinese economy is recovering and the monetary policies introduced by our bank this time will help support the real economy, incentivise spending and investment and also provide a stable footing for the exchange rate,” Pan said.

Pan was joined by Li Yunze, director of the new financial sector watchdog, the National Financial Regulatory Administration, and Wu Qing, chair of the markets supervisor, the China Securities Regulatory Commission.

The officials said the government would boost stock market liquidity by allowing brokers, insurance companies and funds to tap central bank facilities to buy stocks. The PBoC will also provide relending facilities for shareholders to conduct buybacks.

“A fresh stimulus push is certainly positive,” said Liu Chang, macro economist at BNP Paribas Asset Management.

But with economic momentum weak heading into the fourth quarter, officials need to act “very quickly in the weeks ahead to implement additional measures if they wish to get to the 5 per cent target”.

“In this regard, we think there is still a worrying lack of urgency behind their words around stimulus,” Liu said.

In other measures, the bank lowered mortgage downpayments for second homes to 15 per cent from 25 per cent. Second properties had been subject to more onerous conditions to curb real estate speculation, previously a focus for President Xi Jinping.

The PBoC also said it would provide better terms for a destocking programme, under which the central bank made Rmb300bn available to local government-owned enterprises to help them buy up unsold inventory from property developers.

But the central bank stopped short of increasing the funds available under the programme, amid signs it was struggling to gain traction.

Economists have said reducing China’s vast stock of unsold housing is crucial to restoring confidence in the economy and reviving domestic consumption.