In near moment, the European Central Bank will hold the press conference and announcing its first monetary decision of 2015. It is strongly expected that the ECB is to launch a QE program. European stock market opened high in Monday for anticipation of this almost sure to happen monetary stimulus. The biggest concern centers at the size of this QE package, and speculators expected this to be between €50 billion to €60 billion a month. In less than 10 minutes the decision will be unveiled. Global central banks are now pursuing monetary expansion through different approaches. I will then follow up ECB's announcement with an overview of global central banks' strategies.
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★PBoC to Cut RMB Benchmark Deposit and Loan Interest Rate on 22nd November★
People's Bank of China just announced its decision to cut benchmark deposit interest Rate by 0.25% and loan interest rate by 0.4% starting from 22nd November onward. This is popularly interpreted as an asymmetric interest cut and is triggered by Friday's unexpected bearish treasury bond futures market.
To prevent market panic and stimulate the economy in the last quarter of 2014, PBoC has eventually corresponded to economists' appeal and taken concrete measure to lower financing costs. The interest cut will also favor China's housing market that has been sluggish since March this year to provide more and cheaper housing loans to the family who were just given permission to apply for housing mortgage since 30th September.
More monetary stimulus, such as lowering the reserve ratio and canceling the loan-to-deposit ratio, are expected for the PBoC to implement, should China's economy still fall far below its 7.5% growth target.
OPINION: China’s July Economic Data Reveals Market’s Diffident Expectations
An array of economic data for China’s economy in July
indicates a moderate slowdown in investment and production, despite the multiple
government and monetary stimuli taken at the same time. Growth of M2 was 13.5%,
lower than the corresponding period of last year. The data also demonstrated
discouraged corporate and social financing.New loans increased in July were
only ￥385.2 billion, falling
far below the expected ￥700 billion as well as
previous month’s ￥1.08 trillion. This
figure has thus become the lowest since 2009.
Sheng Songcheng, PBoC’s director of Statistics Division,instantlyclarifies
the steep fall in M2 growth as attributable to stricter regulations on
interbank lending and the decreased amount of funds outstanding for foreign
exchange. He also cited historical data, which shows July tends to be a month
of shrinking lending statistics, as well as June’s data, that may somehow
overdraw July’s lending potential.
However, the sudden fall of banking statistics ismore of an
indication of the market’s diffidence to invest, due to rising risks in
property market and credit defaults in the banking system, although these risks
are still controllable at current stage. A mismatch between demand and supply essentially
discouraged investors and banks from loans. Real estate projects are held back
because of housing market’s malperformance, which is partially due to homebuying
and mortgage restrictions. Small and micro businesses are faced with excess
capacity, and existing venturessuffer from decreasing business orders in the market
for property construction. Banks lowered risk preferences and theyhesitate to
loan out even with abundantliquidity. The biggest threat still lies in the housing
market thataccounts for one fifth of the economy, which has been experiencing
cyclical falls since the beginning of 2014.
To underpin the descending housing market, Ministry of
Housing and Urban-Rural Development has acquiesced in cancelling restrictions
on home-purchaseand mortgage for many non-mega cities. At monetary level, the
PBoC has showed full discretion in releasing expansionary forward guidance and
the speaker of PBoC pre-disclosed early statistics of August to demonstrate
economic stability. While PBoC’s targeted easing schemeto support fiscal
expansion is yet to yield concrete growth, the oriented nature of such policy
behaves as a disincentive to and crowds out the real economy, as the real cost
of borrowing remains high. If the third quarter growth rate falls below 7.6%, the
reputed economic microstimulation
would expect a transformation into moderate, or stronger, incentives. An
all-round reduction in the reserve requirement ratio, loan-to-deposit ration or
the interest rate is to be anticipated, along with an overall liberalization
for transactions in the property market.
