SHANGHAI: A reported $81 billion injection into China's major banks is the first of a series of expected stimulus measures by Beijing to boost the world's second largest economy, analysts said Wednesday.
Online portal Sina late Tuesday quoted financial institutions as saying the People's Bank of China (PBoC), the central bank, would channel 500 billion yuan ($81 billion) into the country's five biggest banks. The PBoC has not confirmed the move.
"We believe Beijing (is) to introduce a slew of other easing and stimulus measures in coming weeks to re-boost confidence and re-stabilise growth," Bank of America Merrill Lynch said in a research note.
Hong Kong stocks rallied more than one percent in the first few minutes of trading on Wednesday following the report, although China markets were largely unmoved with the benchmark Shanghai Composite Index up only 0.20 percent by mid-morning.
US stocks reacted to the report strongly, with the Dow Jones Industrial Average rising 0.59 percent to 17,131.97 points and the broad-based S&P 500 up 0.75 percent at 1,998.98.
The Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Agricultural Bank of China and Bank of Communications will receive the funds over three months through the central bank's so-called Standing Lending Facility, a tool it uses to manage short-term liquidity, Sina and analysts said.
The report follows a string of weak data for August, including a five-year low for industrial output growth and a surprise drop in imports, which have put in peril the government's target of 7.5 percent annual economic expansion for this year.
"Such an easing would be consistent with our expectation that monetary policy will (be) loosened amid the drastic slowdown in activity growth," Goldman Sachs commented on the reported move.
"We expect monetary conditions to loosen modestly, which will provide some much needed support for demand growth," it said in a research note.
Analysts said the scale of the injection was equivalent a 0.50 percentage point cut in the reserve requirements for banks, the amount of funds they are required to hold aside.
Although further measures are anticipated, they said, some played down the possibility of China cutting reserve requirements across the board or slashing interest rates.
Expected measures include "targeted" cuts in reserve requirements, speeding up development projects and quicker fiscal spending, Bank of America Merrill Lynch said.
China's gross domestic product grew 7.5 percent year-on-year in the second quarter this year, improving from 7.4 percent in the first quarter, which was the worst since a similar 7.4 percent result in July-September 2012.
Comments
Comments are closed.