Chinese central bank injects stimulus in bid to boost flagging economy

The broader-than-expected package offering more funding and interest rate cuts marks the latest attempt by policymakers to restore confidence in the world's second-largest economy.

China’s central bank on Tuesday unveiled its biggest stimulus since the pandemic to pull the economy out of its deflationary funk and back towards the government’s growth target, but analysts warned more fiscal help was vital to hit these goals.

The broader-than-expected package offering more funding and interest rate cuts marks the latest attempt by policymakers to restore confidence in the world’s second-largest economy after a slew of disappointing data raised concerns of a prolonged structural slowdown.

But analysts questioned how productive the People’s Bank of China’s liquidity injections would be, given extremely weak credit demand from businesses and consumers, and noted the absence of any policies aimed at supporting real economic activity.

“This is the most significant PBOC stimulus package since the early days of the pandemic,” said Capital Economics analyst Julian Evans-Pritchard.

“But on its own, it may not be enough,” he added, saying more fiscal stimulus may be needed to return growth to a trajectory towards this year’s official target of roughly 5%.

Chinese stocks and bonds rallied and Asian stocks hit 2-1/2 year highs as Governor Pan Gongsheng announced plans to lower borrowing costs and inject more funds into the economy, as well as to ease households’ mortgage repayment burden. The yuan currency jumped to a 16-month high against the dollar.

Pan told a news conference the central bank will in the near future cut the amount of cash that banks must hold as reserves – known as reserve requirement ratios (RRR) – by 50 basis points (bps), freeing up about 1 trillion yuan ($142 billion) for new lending.

Depending on the market liquidity situation later this year, the RRR may be further lowered by 0.25-0.5 percentage points, Pan said, in rare forward-looking remarks.