China $81 Billion Stimulus

It's all happening !

PUBLISHED: 0 hour 4 MINUTES AGO | UPDATE: 0 hour 3 MINUTES AGO

China is providing 500 billion yuan ($US81.4 billion) of liquidity to the country’s five biggest banks as Premier Li Keqiang steps up stimulus to support economic growth, Sina.com reported.

The People’s Bank of China yesterday started providing the banks with 100 billion yuan each through standing lending- facilities with tenor of three months, the news website said, citing banking analyst Qiu Guanhua at Guotai Junan Securities. The PBOC will complete the process today, it said.

“This is like ‘printing money’ as base money is created,” Shen Jian-guang, Hong Kong-based chief Asia economist at Mizuho Securities Asia, said. “The immediate impact is similar to an RRR cut of 50 basis points to all banks.” RRR is banks’ required reserve ratio; cutting it increases the amount they have available to lend.

The move shows the government’s determination to support the economy even using broad-based stimulus that may exacerbate the country’s mounting debt. Premier Li’s target of about 7.5 percent gross domestic product growth this year is threatened by a property slump......

...The PBOC had resisted broad monetary-policy easing after first-quarter year-on-year economic growth slipped to 7.4 per cent. Instead, it used tools such as relending, rediscounting and pledged supplementary lending to direct credit to targeted industries or projects, such as low-income housing and agriculture, and reduce their financing costs.

Regulators also increased banks’ capacity to lend money by changing the way loan-to-deposit ratios are calculated.
In a speech at the World Economic Forum in the northern Chinese city of Tianjin earlier this month, Premier Li said the government won’t be distracted by short-term fluctuations in individual economic indicators and will maintain its focus on structural adjustments and dealing with long-term issues.

“The approach of trying to use targeted measures rather than a broad-based credit expansion indicates the government’s strong desire not to backtrack on financial sector reforms while supporting growth,” Eswar Prasad, a former International Monetary Fund economist who teaches economics at Cornell University in Ithaca, New York, said in an e-mail.

....Yesterday’s move reduces the chance of the central bank cutting required reserve ratios and interest rates, which is viewed as more aggressive stimulus, according to analysts at Bank of America Corp. and Goldman Sachs Group Inc. Instead, policy makers may introduce other measures, such as accelerating government spending and lowering mortgage rates to stabilize growth, according to the analysts.

“It appears that the PBOC finally started to become more aggressive to salvage a sluggish economy,” ....

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