Highlights
The People's Bank of China today announced an unscheduled adjustment in policy settings following the release of activity data showing weaker growth in July. Its rate on one-year medium-term lending facility loans was reduced by 15 basis points from 2.65 percent to 2.50 percent. This is the second reduction in this rate in three months. The reverse repo rate was also cut by 10 basis points from 1.90 percent to 1.80 percent.
Officials have characterised recent changes in policy settings as adjustments designed to manage liquidity conditions rather than a change in the stance of monetary policy, with state media recently reporting that senior leadership do not believe that a major shift in policy is required. Today's changes were described in a similar way, with the PBoC advising that they were made to"offset the impact of peak period for tax payment, and keep the liquidity of the banking system adequate at a reasonable level".
Nevertheless, officials have noted recent volatility in economic conditions and that the economy is currently facing"difficulties and challenges". Activity data published today showed weaker year-over-year growth and near-zero month-over-month growth in retail sales, industrial production, and fixed asset investment in July. Trade data also showed further weakness in exports in July, while consumer price data published last week showed deflation for the first time since early 2021.
Although adjustments to policy settings have so far been relatively modest, today's moves may indicate that officials believe additional measures to support domestic demand will be required. This may include a reduction in the loan prime rate at the next scheduled review next week. Recent currency weakness may also provide some support to external demand.
Officials have characterised recent changes in policy settings as adjustments designed to manage liquidity conditions rather than a change in the stance of monetary policy, with state media recently reporting that senior leadership do not believe that a major shift in policy is required. Today's changes were described in a similar way, with the PBoC advising that they were made to"offset the impact of peak period for tax payment, and keep the liquidity of the banking system adequate at a reasonable level".
Nevertheless, officials have noted recent volatility in economic conditions and that the economy is currently facing"difficulties and challenges". Activity data published today showed weaker year-over-year growth and near-zero month-over-month growth in retail sales, industrial production, and fixed asset investment in July. Trade data also showed further weakness in exports in July, while consumer price data published last week showed deflation for the first time since early 2021.
Although adjustments to policy settings have so far been relatively modest, today's moves may indicate that officials believe additional measures to support domestic demand will be required. This may include a reduction in the loan prime rate at the next scheduled review next week. Recent currency weakness may also provide some support to external demand.
Definition
Global-FYI tracks critical developments fon the global markets including political news, special central bank announcements, and substantial moves in the financial markets.
Description
Major political events and special announcements by the global central banks can shift both the short-term and long-term outlooks for the global economy and financial markets.
