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What’s the real reason behind China's latest ‘stimulus’

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 20, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - Mark Williams, Chief Asia economist at Capital Economics said in his latest report that he doesn't see Thursday's China's measures as a new form of monetary loosening, rather considers it as a step towards new monetary policy framework.

    Williams noted, "The main significance of the announcement by the People's Bank (PBOC) that it is cutting standing lending facility (SLF) interest rates is that it is experimenting with a new monetary policy framework. Though the statement doesn't say so, the implication of the move to using the SLF rate as a ceiling is that funds will in future be available at the rate set by the PBoC on demand."

    While Bernard Aw, IG market strategist explained, "The PBoC is looking to shift to a new benchmark policy rate, as they search for new measures of monetary aggregates and credit measures to improve policy effectiveness."

    He added, "The latest PBoC moves are also seen as pre-emptive measures to prevent a liquidity squeeze as the process of initial public offerings (IPOs) resumes. Previously, the IPO batches have led to higher money-market rates as investors' funds were tied up in subscriptions. This time round, the PBoC is keen to avoid the same liquidity drain, ahead of new rules next year which will not require investors to deposit funds equivalent to the amount of stocks they want to subscribe."

    "Overall, I do not rule out further easing to support growth, but I feel that the PBoC is more likely to balance the need to stimulate the economy with ongoing financial reform efforts, especially on the liberalization of the interest rates, “ Aw concluded.
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