MNI:PBOC To Buoy Assets, As Stocks, Property Added To Mandate
MNI (BEIJING) - The People’s Bank of China will strengthen support for stock and real estate markets as the country’s top policy meeting officially included their performance in its mandate, and is also likely to soon announce further easing as it seeks to meet the newly-renewed target of GDP growth of 5%, policy advisors and economists told MNI.
The PBOC is set to expand facilities which provide liquidity for investment funds and insurance companies which buy stocks and to make it easier for banks to finance buybacks to a total CNY300 billion this year, said Lian Ping, chairman at the China Chief Economist Forum. It is also likely to reduce relending rates at a targeted pace to boost the flow of funds to equities and housing, he said, noting that it could expand the use of bonds or stocks as collateral for relending. (See MNI INTERVIEW: Call For PBOC To Boost Support For Stock Market)
An over-CNY1 trillion national fund for stock market is already likely under discussion, said Lian, speaking after Premier Li Qiang’s Work Report at the opening ceremony of the National People’s Congress highlighted the new focus for the central bank, whose support for stocks and property has in the past largely been limited to policy coordination with other authorities
Stabilising stock and real estate markets could produce a wealth effect, boosting consumption and supporting a moderate rebound in prices, Chen Changsheng, deputy director of the State Council Research Office and a member of the team which drafted the Work Report, told reporters on Wednesday.
INFLATION TARGET
The PBOC’s inflation target was reduced to 2% from 3%, the lowest since 2004, as the country faces weak demand. (See MNI: China To Lower 2025 CPI Goal As Deflation Pressure Looms)
Lowering the inflation target was a pragmatic move given that CPI might increase by only around 1% this year, after consumer price rose by just 0.2% in 2024, Zhao Xijun, co-dean of the China Capital Market Research Institute at Renmin University of China, told MNI.
The new target is in line with global norms, and should help to set domestic expectations, said Zhang Yiqun, director at a fiscal studies institute affiliated with Jilin province’s finance department, predicting that efforts to boost consumption should support prices, and that some items, such as water and gas, may rise in price due to the green transition.
But the PBOC’s greatest focus will be on achieving the GDP growth target of 5% of a year, Zhao said, adding that it would respond with easing to any signs of a possible shortfall.
Banks’ reserve requirements are likely to be cut by 50 to 100 basis points for the whole year, releasing CNY1-2 trillion yuan in market liquidity, according to Lian. The PBOC will provide short-term liquidity to money markets and could resume government bond purchases or expand outright repurchase operations when necessary, Lian said, adding that there would also be room for rate cuts if the U.S. Federal Reserve eases again in the second quarter.
FX STABILITY
The Work Report repeated previous calls for the PBOC to ensure the stability of the yuan exchange rate at a reasonable and balanced level. While any significant fluctuations of the yuan would be curbed to keep capital markets steady, the stability of the real estate and stock markets may take priority over the forex market, Zhao said. (See MNI: PBOC To Ensure Yuan Stability In Trump's Second Term)
Lian noted the central bank had strongly signalled its stance against any significant yuan depreciation, by recently reducing the frequency of its references to the need to increase the flexibility of the currency exchange rate . Still, the intensifying China-U.S. trade war and the slower pace of Fed rate cuts will exert downward pressure on the yuan, Lian said.