11 Feb 2020 CHINA DAILY

Financial stimulus to hedge downside risks

Economists expect the government to step up easing measures to support the economy, as the negative effect of the virus outbreak has led to a revision in their forecasts for the country's GDP growth in the first quarter.
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Last week, the PBOC indicated that it might cut the medium-term lending facility rates later in the month and said that it is considering postponing the implementation of the new asset management rules. The rules are part of the government's efforts to rein in financial risks, issued in 2018 and scheduled to take effect in 2020.

"In a more severe scenario that the outbreak is not brought under control until May and travel restrictions persist into the second quarter, additional policy support would be required to put a floor under GDP growth," said Shan, the Goldman Sachs economist.

"In this alternative scenario, we would expect additional cuts of the reserve requirement ratio, cumulative 60 basis points cuts to the loan prime rate and medium-term lending facility rates, and a seven-day repo rate averaging closer to 2 percent. In addition, we would expect an even wider augmented fiscal deficit and even faster total social financing growth," Shan said.