Daily Management Review

Chinese Premier Pledges More Policy Measures To Boost Slowing Economy


03/15/2019




China promised broad and wide ranging changes to its economic policy in order to arrest a sharper slowdown for the world's second-biggest economy. The Chinese Premier Li Keqiang said on Friday that reserve requirements and interest rates could be used by China to support economic growth.
 
In order to further ease pressure on businesses and consumers, more forceful stimulus measures could be rolled out the Chinese authorities, suggested Li's comments.
 
According to experts, there could be more cooling down of momentum in the Chinese economy because of a reduction in domestic demand and because of the tariffs from the trade war with the United States, and promises of tax cuts and infrastructure spending worth billions of dollars have already been made by Beijing in that context.
 
Following the pledge of the government about its commitment to boosting growth, there was an uptick in Chinese share markets on Friday. Following the comments from Li, the yuan recovered from a three-week low against the dollar.
 
The targeted economic growth for of China for the current year is around 6.0-6.5 per cent, compared to the 6.6 per cent it achieved in 2018 – which was its slowest growth rate in the last 28 years.
 
"Of course, we are faced with many uncertain factors this year. We have to prepare more and we have reserved policy room (to address uncertainties)," Li told a news conference after the annual parliament meeting ended.
 
"Moreover, we can deploy quantity-based or price-based policy tools such as reserve requirements and interest rates. This is not monetary easing but to more effectively support the real economy."
 
Banker Morgan Stanley said in a note that Li's comments "reconfirm a consistent pro-growth stance, with clarity on fiscal easing and an earlier-than-expected effective date for tax cuts." It also added that it expects growth would increase starting the second quarter of the current year.
 
According to analysts, the impact of the support measures that have been rolled out so far is yet to manifest and according to most analysts, it would not be until the middle of current year that there would be some convincing stability in the economy.
 
The reserve requirement ratios (RRR) of Chinese banks had been brought down five times in the last one year by China’s central bank with the aim of giving more liquidity to the banks to lend to industries. The central bank had made a two-stage RRR cut in January which made available a total of 1.5 trillion yuan ($223.23 billion) with the banks to invest in the financial system.
 
Economists expect more such RRR cuts this year too following consistent sets of data indicating the possibility of a slowing down of demand in the second largest economy of the world which increases concerns of a greater slowdown.
 
According to media reports, while the central bank is not yet willing to resort to cutting down on the benchmark interest rates to rejuvenate the slowing economy, it is most likely to reduce the market-based rates.
 
(Source:www.marketwatch.com)






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