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China’s Central bank has unveiled a series of monetary stimulus measures to bolster the country’s economy amid deflationary pressures and the risk of missing this year’s growth target. At a press conference, Governor Pan Gongsheng announced that the People’s Bank of China will reduce reserve requirement ratios (RRR) by 50 basis points and cut the seven-day repo rate by 0.2 percentage points.

Additionally, Interest rates on existing mortgages will be lowered by an average of 0.5 percentage points, aiming to provide some relief to households. The move comes as China’s economy faced slower-than-expected growth in the second quarter and missed expectations in August, prompting the need for more support.

Despite concerns about the timing of these measures, analysts view them as crucial to boosting confidence and stimulating economic activity. The government targets around 5.0% economic growth for 2024, although some investment banks have revised their forecasts downward.

Following the announcement, stock prices rose, and China’s yield on the 10-year government bond fell while treasury futures rose to a record high. Pan mentioned the possibility of further monetary policy easing later in the year, including another RRR cut.

These measures align with actions taken by the U.S. Federal Reserve, providing the PBOC with more room to ease monetary conditions without significant pressure on the yuan.

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