(Bloomberg) — The People’s Bank of China reiterated a pledge to provide stronger monetary policy support for the economy, emphasizing goals to stabilize jobs and inflation and providing further signals it will focus on boosting credit growth.
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The PBOC will “coordinate work on stabilizing employment and prices,” according to a statement published Wednesday after a quarterly meeting of the bank’s monetary policy committee, which was chaired by Governor Yi Gang. Global economic growth is slowing and inflation is running high, while domestic Covid-19 control work is still difficult despite the recent improvement, the board decided at the meeting on June 24.
Repeating a pledge from its previous quarterly meeting, the PBOC said it “will be proactive to boost confidence, and provide stronger support to the real economy, in order to stabilize the macro economy.”
Governor Yi signaled in an interview this week that monetary stimulus would likely focus on boosting credit rather than lowering interest rates, arguing that China’s “real interest rate is pretty low.” The PBOC’s statement Wednesday underscored that shift, by removing a pledge in the previous quarterly meeting to “to keep the macro leverage ratio basically stable.”
Goldman Sachs Group Inc. said the absence of that phrase “suggests policy makers might aim to accelerate credit growth in the near term.”
The PBOC said in May that the macro leverage ratio, or the debt-to-gross domestic product ratio, will climb but remain within a reasonable range, as it strives to make credit growth more stable. The ratio reached 266% in the first quarter, according to Bloomberg calculations.
Weak Sentiment
The central bank also said it will take advantage of a rise in domestic grain supply and stable energy markets to keep prices basically stable. It will step up support for inclusive finance loans to small businesses and help them to stabilize the job situation, according to the statement.
The necessity of doing more to increase employment was made clear by a separate central bank report on Wednesday, which showed that households are more pessimistic about jobs than at anytime in more than two decades.
A gauge measuring expectations for future employment plunged to 44.5 in the second quarter, the lowest level since 2009, according to survey of depositors by the PBOC. Another gauge measuring how residents perceive the current employment situation also sank to the lowest since 2009.
The official jobless rate was 5.9% in May, above the full-year target of “under 5.5%,” while the youth unemployment rate surged to a record 18.4%.
Any boost to sentiment will depend on how the government manages Covid outbreaks going forward. While it’s eased some rules around travel, President Xi Jinping this week reaffirmed his committment to the Covid Zero policy.
Read more: Xi Warns Against ‘Herd Immunity,’ Vows to Stick With Covid Zero
People’s’ confidence in their future income tumbled to the worst level since the first quarter of 2020, when the Covid pandemic first broke out, according to the survey. Some 58.3% of the respondents said they were more willing to increase savings, up 3.6 percentage points from the the first three months of the year.
An index measuring overall loan demand tumbled to the lowest level since 2016, according to another PBOC survey of the heads of banks across the country. The central bank is struggling to get companies and households to expand long-term borrowing even as it has guided mortgage and loan rates lower this year.
Read more: China Credit Rebound Masks Still Subdued Consumer Borrowing
A gauge measuring the looseness of monetary policy in the eyes of bankers climbed for the second straight quarter, with 40% of the respondents saying policy was “loose,” up 13 percentage point from the previous quarter.
The policy board meeting reiterated that the central bank will step up the implementation of a prudent monetary policy, and make loan growth more stable, and reaffirmed that liquidity will be kept reasonably ample. Premier Li Keqiang said recently that China’s decision to not over-print money is crucial to preventing inflation and reserving room for future policy action.
As well as the actions of the central bank, there will be a lot of attention on the Communist Party’s upcoming Politburo meeting for clues on further policy support. The meeting, usually held in late July, will discuss the country’s economic outlook and strategy.
(Updates with additional comments from central bank statement.)
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Source: ca.finance.yahoo.com
