- The People’s Bank of China (PBOC) has not cut banks’ cash reserve ratio for two months, defying analyst expectations, while letting market interest rates rise
- But the PBOC is unlikely to completely end stimulus efforts, given persistent economic challenges
China has started to ease up on the emergency monetary measures it used to support its economy in response to the coronavirus outbreak, according to analysts.Having avoided a recession with a stronger-than-expected economic rebound in the second quarter, and with concerns looming of creating excess debt and financial bubbles, pundits say Beijing sees less of a need for extra cheap money.But it is too early, they speculate, for the People’s Bank of China (PBOC), China’s central bank, to abandon monetary stimulus altogether. They point to the uneven recovery, still-weak domestic demand, high unemployment and uncertainties about the impact of rising US-China tensions.
Expectations are that the PBOC will adopt a more targeted and structured approach to stimulus in the second half of the year, instead of a continued broad relaxation of monetary conditions.
On Monday, the PBOC announced that it would leave its benchmark lending rate unchanged – the third month in a row that it has not changed the loan prime rate. Amid the coronavirus outbreak, the PBOC cut the loan prime rate twice this year, in February and April.
The Chinese central bank has also refrained from further cuts in banks’ reserve requirement ratio for two months, despite widespread market expectations for at least one more cut. It had cut the ratio three times this year, unfreezing 1.75 trillion yuan (US$250 billion). The PBOC has often used adjustments to the ratio to reduce the amount of money that banks are required to hold in reserve, to pump more funds into the banking system.