China Unveils Monetary Easing Measures

(RTTNews) - The People's Bank of China reduced its benchmark interest rate and reserve requirement ratio and also unveiled a slew of measures to support economy hit by trade tariffs.

The PBoC cut the 7-day reverse repo rate by 10 basis points to 1.4 percent. The new rate takes effect on May 8.

The reserve requirement ratio was lowered to 9.0 percent from 9.50 percent. The reduction is set to release CNY 1 trillion liquidity into the financial system.

In order to promote lending to the tech sector, the bank decided to increase re-lending fund by CNY 300 billion, PBoC Governor Pan Gongsheng said. For domestic consumption and elderly care, the bank will set up a CNY 500 billion, Pan said.

Another measure was a reduction in the housing provident fund loan rate to support the real estate sector.

Pan also outlined more measures that included rate reductions on re-lending tools and loans for policy banks.

The announcement from PBoC came ahead of anticipated US-China trade talks.

ING economist Lynn Song said the easing steps will likely result in short-term interest rates falling. This could push the USDCNY a little higher, but the impact should not be too dramatic, he noted.

The economist still sees more room for additional policy easing if needed, given deflationary pressures and the risk of moderating growth.

Song expects another 20bp of rate cuts and 50bp of RRR cuts this year, and that the next move might not come until after the US Federal Reserve resumes rate cuts.

These measures will help to shore up growth at the margin, economists at Capital Economics said. However, any boost to credit demand will be moderate and these moves are no substitute for an expansion in fiscal support, they noted.