China Introduces Economic Stimulus Measures

By Summer Zhen and Clare Jim

(Reuters) – China announced a broad range of stimulus measures on Tuesday to support the faltering economy, stabilize the housing sector, and restore market confidence. Stocks and bonds jumped after the announcement.

Key Measures Announced

Here are the key measures announced during the press conference by People’s Bank of China (PBOC) Governor Pan Gongsheng, National Financial Regulatory Administration Minister Li Yunze, and China Securities Regulatory Commission (CSRC) Chairman Wu Qing:

RRR Cut

• The central bank will cut banks’ reserve requirement ratio (RRR) by 50 basis points soon, freeing up about 1 trillion yuan (~$142.21 billion) for new lending.
• Depending on market liquidity, the RRR may be lowered further by 0.25-0.5 percentage points later this year.

Rate Cut

• The seven-day reverse repo rate will be cut by 0.2 percentage points to 1.5%.
• This measure is expected to guide the medium-term lending facility (MLF) rate lower by 0.3 percentage points and loan prime rate (LPR) and deposit rates by 0.2-0.25 percentage points.

Reduction in Existing Mortgage Rates

• The central bank will guide commercial banks to reduce interest rates on existing mortgages by 0.5 percentage point on average, benefiting approximately 50 million households which will save 150 billion yuan in interest per year.

Lower Down Payment

• The minimum down-payment ratio for second-home buyers will be lowered to 15% nationally from 25%.

Relending Loan Facility

• The PBOC will allow commercial banks to use 100% of the 300 billion yuan relending loan facility to finance loans to state-owned firms for acquiring unsold flats for affordable housing.
• The PBOC may also allow banks to provide loans for quality corporates to acquire land from developers.

Reviving Stock Market

• The securities regulator will issue guidance for medium and long-term funds to enter the market and promote mergers and acquisitions.
• Support will be provided for Central Huijin Investment in stock purchases and expanding investment scope.
• The CSRC will optimize registration for equity-focused fund products and promote innovation in ETFs and other index products.

Funding for Stock Purchases

• The PBOC introduced two new tools to boost the capital market:
  1. A swap program starting at 500 billion yuan to help funds, insurers, and brokers access funding for stock purchases.
  2. Up to 300 billion yuan in cheap PBOC loans to help commercial banks fund share purchases and buybacks.

($1 = 7.0321 Chinese yuan renminbi)