MNI China Press Digest July 19: LPR Cut, H2 Fiscal Expansion

The following lists highlights from Chinese press reports on Monday:

• The PBOC may cut its one-year Loan Prime Rate, the central bank's guidance for lending, by 5 bp on July 20 when the monthly-set guidance is released, Yicai.com reported citing industry economists. The cut became more likely after the central bank had lowered the required reserve ratios by 0.5 pp for all lenders on July 9, unlocking CNY1 trillion, Yicai said. The PBOC may further cut the RRR by 0.5 pp to help renew as much as CNY2.45 trillion maturing MLF, Yicai said citing economists. The central bank's expected move may come on the rising expectation that the U.S. Federal Reserve may be forced to begin scaling back easing to cool inflation, Yicai said. China's businesses need a financial boost given the lack of fiscal stimulus in H1, including the slower-than-usual issuances of local government debt, the newspaper said citing Lian Ping, the chief economist at Zhixin Investment.
• China should consider selling more central government debt to boost expansionary fiscal policies given the uncertainties including the recurring pandemic and risks of the U.S. Federal Reserve raising rates, Yu Yongding, a former member of the PBOC's monetary policy committee, said in an interview with the Economic Observer. Monetary policies should play a supporting role to help drive down the government bond yield curve and implement the fiscal stimulus, and the PBOC should even consider QE if necessary, Yu told the newspaper. China should also tolerate relatively high inflation so that the higher commodity costs seen in H2 can be passed downstream to consumer goods, thus help boost business profits and promote recovery, Yu said.
• China may increase fiscal expansion in Q4 by accelerating local government bond issuances to support growth next year, given weakening leading indicators including PMI's new export order index, property sales and investment, the Securities Times reported citing analysts. Targeted measures to stabilize the operation of SMEs and boosting employment remain the top priority in H2 as growth normalizes, the newspaper said. China's Q2 GDP grew 7.9% y/y, averaging 5.5% over the last two years, lower than 6% in Q2 of 2019, the newspaper added.