China’s moves to curb market speculation are not ‘abrupt’ exit from coronavirus stimulus
- The People’s Bank of China (PBOC) offered 2 billion yuan (US$309 million) in new liquidity on Tuesday, a far lower amount than the market expected
- This raised market speculation that it may have started a faster-than-expected reduction of coronavirus stimulus given forecasts for strong economic growth
Unexpected moves by China’s central bank to reduce liquidity in the banking system do not represent an “abrupt” and long-lasting policy change, but are in fact an effort to protect against property and financial speculation by drawing a “red line” to guard against increasing debt.
Worries about a tightening of policy, viewed as particularly unusual ahead of the Lunar New Year holiday, drove up the overnight interest rate that banks use to borrow from each other to a 21-month high of 2.97 per cent.
However, analysts played down the prospect of any rapid reduction in monetary stimulus, arguing that policymakers are addressing some risks in the financial system – including high leverage in the market, the high exposure of institutions to lending in the property sector, the sharp rise in speculative inflows of hot money to buy into the better returns on offer in Chinese markets and the strength of the country’s economic rebound.
The weak economic performance owing to the resurgence of Covid-19 cases [in recent weeks] and [the economic impact of] subsequent restrictive measures don’t justify such liquidity drainage
“It doesn’t represent an abrupt policy turn, nor will it last long,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank, who added that he expects a resumption of liquidity injections in the near future to support the economy.