China Vows to Use Monetary Policy Tools at Appropriate Time

  • Officials to consider new measures to boost consumption
  • Stability fund to be set up to support troubled firms

China signaled it would loosen monetary policy as authorities seek to combat an escalating Covid outbreak, slumping property market and spiking commodity prices.

Officials will use monetary policy tools at an “appropriate time” and consider other measures to boost consumption, according to the readout from a meeting of the State Council chaired by Premier Li Keqiang on Wednesday. Separately, the central bank published a draft outline for a stability fund to provide support to troubled financial firms.

Chinese authorities have made repeated vows to stabilize the economy in recent weeks as Covid restrictions curtail spending and business activity. A gauge of sentiment in the services sector fell in March to the lowest level in about two years, while the country’s financial hub Shanghai is in total lockdown. That’s putting the government’s ambitious growth target of 5.5% for this year in doubt.

Top financial leaders committed earlier to easing regulatory crackdowns, supporting property developers and stimulating the economy through monetary policy. However, few concrete steps have been taken. A reduction in the interest rate on one-year policy loans is expected as soon as next week, a Bloomberg survey shows.

There is even more downward pressure on the economy and there needs to be new measures to boost confidence, according to the State Council statement. While the economy is moving in a reasonable range, domestic and external difficulties are much larger than expected, with more frequent virus outbreaks, a slowing global economic recovery and fluctuating commodity prices, the report said.

The stability fund will be set up with capital from financial institutions and received liquidity support from the People’s Bank of China, according to a draft law published on Wednesday. The size of the fund wasn’t given.

Bloomberg News reported last week the central bank is leading an effort to raise several hundred billion yuan for a new fund to defuse financial risks. China is moving to stem financial risks ranging from hundreds of weak rural banks to dozens of distressed developers saddled with at least $1 trillion of liabilities.

China’s monetary authorities will be flexible in their use of policy tools to provide better support to the real economy, while ensuring liquidity is reasonably ample, Wednesday’s State Council statement said. There will also be an increase in relending programs for rural and small businesses.

Lockdowns and other restrictions to curb the spread of Covid-19 show spending is still well below pre-pandemic levels. Tourism revenue over the three-day national holiday that ended Tuesday was only about 39% of the level reached during the same period in 2019, data from the Ministry of Culture and Tourism showed.

The government will study how to boost consumption and investment, and postpone the collection of pension payments for industries such as restaurants, retail, and tourism that are struggling, especially smaller companies. It will also provide payouts for unemployed and migrant workers as well as vocational training to get them back into the workforce.

Source: Bloomberg

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