China’s RR reminds Reuters that the economy remains weak

By Marc Jones and Tom Arnold

LONDON (Reuters) -China’s decision on Friday reminded investors of the decision to give its economy 1 trillion yuan ($ 154 billion) while even the largest economies are likely to pick up occasionally during the coronavirus pandemic. lasts.

In one of the Friday night marks, the People’s Bank of China (PBOC) reduced its reserve requirements ratio (RRR) (money banks have to park in the central bank for security) by 50 percentage points (bps).

This is the first such step since COVID spread rapidly around the world in April last year. Significantly, the authorities, who are eager to keep credit growth out of control, are gradually ending up tightening their nine-month policy.

“We believe this marks a shift from stress to an anticyclical tightening,” analysts say Morgan Stanley (NYSE:) said: “Considering the recent growth in the resurgence of Covid, supply chain disruptions and the increase in domestic consumption moderation.”

Manik Narain, head of UBS’s emerging markets strategy, said the move is to fit more than one turn made by the PBOC. About 1 trillion yuan worth of RRR is likely to be used to repay existing PBOC ‘Medium-Term Loan Facilities’ funding, and 700-750 billion in tax payments will also have to be paid soon.

But, from an overall perspective, he reminded that hanging COVID in support measures will not be a light slip for anyone.

“China came in first, with the support of COVID policy,” Narain said. “So if you’re thinking about global importance, the message you received here might show that PBOCs are somewhat fragile economies and that inflation won’t be very detrimental in the medium term.”

ANSWER

The PBOC’s move is to revitalize global COVID cases.

At the same time, however, the U.S. Federal Reserve is reducing its asset purchases and the interest rate it set last year to near zero, and heavy markets like Brazil, Mexico and Russia have heavy weight to deal with interest rates. peaks in inflation.

The bond market appears to be responding to China’s revolving rate cycle by pushing prices at lower interest rates in the medium term. Even ahead of RRR’s announcement, it suggests that a reduction would come earlier this week so that China’s yield on 10-year government bonds could have the biggest weekly decline this year.

Many Chinese observers believe that the exceeded demand for COVID has now peaked and that growth rates will moderate, with weakening exports, inflation in producer prices and Beijing’s continued crackdown on the real estate market.

This year the economy is expected to grow by more than 8%, however, contrary to what the government is doing against modest growth of more than 6%, which suggests that the pressure will not increase.

“We hope to maintain a fiscal policy focused on specific sectors most affected by pandemics such as small businesses. We hope to maintain the macro-prudential tightening of the property market as well,” said Gustavo Medeiros, head of research at the Ashmore Group.

UBS’s Narain said it was removing another from Friday’s move, likely to see other large emerging markets as a sign that it will come to their economies.

“If I’m the head of the central bank in Mexico or Brazil and I’ve already done route fees, I’m also being told that the (interest rate) ride cycle will probably be low.”

($ 1 = 6,495 renminbi)

(Additional graphic by Karin Strohecker published by Mark Potter)