Source: Bloomberg

China is increasing the policy stimulus of the economy, but the debt soaring and financial stability worry means that compared with the previous rounds of stimulus measures, the chips that can be used in Beijing may now be limited.

The People's Bank of China unexpectedly lowered multiple different policy interest rates on Tuesday to pave the way for the interest rate operation (MLF) interest rate on the intermediate borrowing (MLF) on Thursday.Late on Tuesday, the central bank will be regarded as the upper limit of the interest rate corridor (SLF) interest rates, and the market's expectations of loose policies will be further enhanced.

People familiar with the matter revealed that in addition to these monetary policy actions, officials are also considering the introduction of a package of policy measures to cover many aspects such as real estate to domestic demand.

This movement indicates that the Chinese government is changing its cautious position in stimulating measures. After the fading of consumption driven at the beginning of this year, decision makers are worried about the slowdown of the economy.However, because the real estate is stretched, the impact of stimulus measures and the government's policy are relatively limited.

Lu Ting, chief Chinese economist of Nomura Holdings, said that the space of traditional stimulus tools is getting smaller and smaller, and the negative impacts they have previously brought are still lingering, including heavy local government debt, inefficient investment, waste of resources, waste of resourcesThe high debt rate means that the difficulty of launching a package plan is increasing.

After the interest rate cut on Tuesday morning, the financial market response was relatively calm, indicating that more and more people suspected that relying on monetary policy alone could not solve economic problems.With the slowdown of the global economy, Chinese companies and consumers are still weak, residents are unwilling to bond, the inflation rate is close to zero, and exports have shrunk.

Lu Ting said that whether it is official or folk, everyone realizes that the economic recovery is facing tremendous pressure.The risk of dual bottom risks is not enough to reduce interest rates alone.

Even so, economists believe that the Central Bank of China will further relax monetary policy this year.Goldman Sachs expects that the bank deposit reserve ratio will be reduced by 25 basis points in the third quarter, which will release more funds for bank loan.Economist at the bank said that the deposit reserve ratio or interest rate reduction may be reduced again in the fourth quarter, depending on economic performance.

Interest rate corridor

Beijing time on Tuesday evening, the People's Bank of China will reduce 10 basis points each overnight, 7 days, and one -month SLF interest rate.

McGacea's Group predicts that after the downgrade of this week, the Central Bank of China may reduce the one -year MLF interest rate by 10 basis points in the third quarter.

Bloomberg economist's perspective

Our model indicates that the MLF interest rate is reduced by 10 basis points that will only bring mild booster to economic growth. This year's GDP growth can only increase by 0.1 percentage points.This shows that more stimulating measures are required in the end, but even if it is slightly cutting interest rates, it may boost market confidence.- Bloomberg Chinese economist Qu Tianshi

A person familiar with the matter revealed that the new package stimulus plan was drafted by multiple government agencies, including measures to support real estate and domestic demand.

support for the real estate market will be the key to a package plan.A person familiar with the matter said that the regulatory agency considers reducing the interest rate of the stock loan and further providing more financing support for the preservation of the insurance buildings through policy financial instruments.

People familiar with the matter said that the State Council was discussed earlier or on Friday, and it was unclear to the schedule of the announcement and implementation of the plan.

"The purpose of this round of stimulus measures is to keep the economy grow and reach the level of the relatively conservative GDP target of about 5%, not to stimulate the violent economic growth," Pantheon MacroeeConomics Duncan, Duncan, Duncan,Wrigley said."Policy makers are still worried about the debt problem left by the global financial crisis during the global financial crisis. Before the outbreak, they spent more than ten years to solve this problem."

Real estate dilemma

The weak real estate market is still the main factor of the Chinese economy, but decision makers seem to be reluctant to use real estate investment to drive the traditional means of economic economy.Goldman Sachs analyst said in a recent report that they expect the shed reform plan from 2015-2018 will not repeat it. At that time, the central bank had injecting a lot of funds into the economy through this plan and promoted the surge in house prices.

Goldman Sachs said that Beijing is currently seeking to reduce the dependence of economic and finance to the real estate market.

WRIGLEY predicts that Chinese officials may allow cities to reduce the down payment ratio, guide the mortgage interest rates to decline, and to a certain extent cancel the restrictions on house purchase.He said that the central bank cannot exclude financing support for small cities (similar to the shantytown renovation project of that year), but the scale may be smaller.

Yi Gang, the president of the People's Bank of China, hinted last week that he would improve the flexibility of the policy and promised to increase the regulation of counter -cycle.Some analysts say that the change of such wording implies that the official will launch more loose policies.Yi Gang also promised to fully support the development of the real economy.

Fed's policy decision this week may also promote interest rates at the Central Bank of China.The Fed's expected to suspend interest rate hikes in June will help alleviate the pressure of RMB depreciation.The RMB against the US dollar has fallen 3.6%this year, becoming one of the worst performance in Asian currencies.

Hu Weijun, chief economist of the Greater China District of Macquarie Group, said that reducing interest rates suggesting that Beijing's position is shifting to provide support, and various policies and measures will move towards the same direction.

He said that consumers and enterprises are weak in economic confidence. Policies are the only changes. The reduction in interest rates issued a clear signal on Tuesday, that is, the policy will become more supportive in the next few months.Policies have a major change.