China Sees Third Quarter As Key For Rollout Of Stimulus Measures
China said it will accelerate its stimulus rollout in the third quarter as it tries to recover from a Covid-marred second quarter.
(Bloomberg) -- China said it will accelerate its stimulus rollout in the third quarter as it tries to recover from a second quarter marred by pandemic-related losses.
It’s “crucially important” for the country to adopt supportive policies this quarter, Yang Yinkai, deputy secretary general at the National Development and Reform Commission, told reporters in Beijing on Monday. He was speaking alongside officials from the central bank and other government ministries.
Yang and the other officials noted that 300 billion yuan ($43.6 billion) in funds have been distributed through a policy bank financing program, which is intended to spur infrastructure investment this year. Local governments have also sold 3.5 trillion yuan worth of special bonds through August, they said, including almost all of the bond quota allocated for construction projects.
The briefing came a little over a week after Beijing unveiled a package of stimulus measures worth more than 1 trillion yuan, focused mainly on infrastructure spending as a vehicle for growth. The government has been ramping up support for an economy weighed down by Covid outbreaks and lockdowns, along with an unfolding property crisis and power shortages.
At the same briefing Monday, central bank Deputy Governor Liu Guoqiang addressed the currency’s weakness, saying authorities will be able to keep the yuan stable. Shortly after his comments, the PBOC cut the foreign-currency reserve ratio by 2 percentage points, a move aimed at boosting the yuan.
“Movements that are reasonable, equilibrium and basically stable is what we’d like to see,” Liu said, adding that such a trend would “not be allowed to change.”
He added that the “spill-over impact of US monetary policy is controllable” due to the resilience of the Chinese economy and the rising flexibility of the yuan’s exchange rate. While the hawkish US Federal Reserve has been raising interest rates this year to tame inflation, China’s central bank has moved in the opposite direction, most recently cutting its key policy rate by 10 basis points.
The yuan just capped its sixth consecutive month of declines -- the longest period of depreciation since it weakened in October 2018 while trade tensions with the US were escalating. The offshore yuan weakened to6.9551 per dollar on Monday, a fresh two-year low.
What Bloomberg’s Economists Say ...
“China’s yuan is approaching 7 per dollar, after dropping more than 3% since early August. The downward pressure from market forces -- as reflected in our daily stress gauge -- suggests it’s only a matter of time before the yuan breaks this key threshold. A slumping economy and the dollar’s climb are hurting the currency, although China still has tools it can use to slow the pace of depreciation.”
-- Eric Zhu, economist
Read the full report here.
Economists have speculated that there could be further monetary policy easing to come, including a reduction in the amount of cash banks must keep in reserve.
“China’s policy toolbox is ample currently, both in terms of price tools and quantitative tools,” Liu said. “We will strike a balance between stabilizing growth, employment and inflation.”
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