PBOC says difficulties in maintaining stable economic operation is increasing, stresses policy stability

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China’s central bank said it would keep its prudent monetary policy flexible and targeted and strike a balance between economic growth and risk preventions, according to the third-quarter monetary policy report released by the People’s Bank of China (PBOC).

Chinese economic recovery is facing some temporary, structural and cyclical constraints and meanwhile difficulties in maintaining stable economic operation is increasing, said the central bank.

The PBOC will “grasp the strength and rhythm of policy, handle the relationship between economic development and risk prevention, make cross-cycle adjustments, maintain the overall stability of the economy.”

Notably, compared to the monetary policy report for the previous quarter, the latest report added wording of “increasing stability of aggregate credit growth” and meanwhile removed the expressions of “stick to normal monetary policy”,”will not resort to flood-like stimulus” and “control master valve of money supply.”

The PBOC reiterated that it will keep liquidity reasonably ample, keep growth of money supply and total social financing match nominal economic growth and will maintain macro leverage ratio largely stably.

Due to rising commodity prices, price hikes in some energy-intensive sectors and low comparison bases, China’s Producer Price Index (PPI) growth has accelerated and it will likely remain elevated in the short term, according to the report.

In the new report, the central bank it didn’t require “further declines in real rate on bank loans,” instead it pledged to improve market-oriented mechanism of interest rate formation and transmission mechanism and push comprehensive borrowing costs lower for small- and medium-sized enterprises.

The weighted average corporate lending rate was at 4.59% in September, down 0.04 percentage points from a year earlier and hovering near historical lows, it added.

In terms of the real estate sector, the PBOC reiterated that “housing is for living, not for speculating” and it will not use the real estate sector to stimulate the economy in the short term, adding that the overall risks in the real estate market is controllable and the overall healthy development of the real estate market will not change.

The central bank will maintain continuity, consistency and stability of real estate policy, continue implementing the prudential management system of real estate finance, step up financing support for rental housing and work with other state agencies and local governments to maintain steady and healthy development of the real estate market, according to the report.

China’s outstanding loans to the real estate sector stood at 51.4 trillion yuan by the end of September, rising 7.6% from a year earlier, slowing by 1.9 percentage points from the end of June, according to the report.

That included 37.4 trillion yuan of home mortgage loans, rising 11.3% from a year ago and slowing by 1.7 percentage points from three months earlier, and 9.3 trillion yuan of real estate development loans, rising by 0.1% year over year and slowing by 3.3 percentage points from the end of June, according to the central bank.

At the end of September, the excess reserve ratio of Chinese financial institutions was at 1.4%, up 0.2 percentage points from the end of June, the central bank said.

The market should not judge liquidity condition based on excess reverse ratio or to equal falling excess reserve ratio to tightening liquidity, according to the report. Instead, observing market interest rate is the correct method to judge liquidity condition, it added.