PBC says interest rate, RRR cuts different from QE
The recent cuts in interest rates and banks' reserve requirement ratio (RRR) are not quantitative easing (QE), news portal ifeng.com reported on Thursday, citing Yin Yong, assistant governor of the People's Bank of China (PBC).
Yin made the remarks at a forum held in Beijing from Wednesday to Thursday, aiming to dismiss concerns that the central bank is resorting to QE to help warm the cooling economy.
Yin also said the spillover effects of China's economic slowdown had been overstated, according to the report from ifeng.com, noting that it's too arbitrary to attribute economic difficulties in emerging markets, the slow recovery in developed countries and recent fluctuations in the international financial market to China's economic slowdown.
The PBC announced on October 23 a cut in the country's one-year benchmark bank lending rate by 25 basis points to 4.35 percent, and a drop in the one-year benchmark deposit rate by 25 basis points to 1.5 percent.
It was the sixth cut since November 2014. Meanwhile, the RRR, the amount of money banks are required to hold in reserve, was also cut by 50 basis points.
The central bank has been eager to emphasize that its move did not represent a form of QE.
"Senior officials like Yin have stressed this in public, aiming to further stabilize the market," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times Thursday.
Countries such as the US have in the past sought to stimulate their economies through QE by creating new money to purchase assets such as government bonds. But China's recent cuts are different, Zhou noted.
According to a statement that the PBC released on Monday, the latest rate cuts were "conventional and normal monetary policy measures."
"Interest rate cuts are helpful for boosting the real economy. For instance, it can lower financing costs for enterprises and encourage individuals to increase their consumption," Zhou said, adding that RRR cuts "can inject liquidity into the market."
Moody's predicted in a report released Tuesday that the RRR cuts will free up 600 billion ($94.39 billion) to 700 billion yuan, and said it expects further easing measures, both monetary and fiscal, to support growth.
"Looking ahead, given where real interest rates are, additional stimulus is likely if growth momentum remains subdued," Atsi Sheth, an associate managing director in Moody's sovereign risk group, said in an e-mail to the Global Times on Thursday.
Yin also stressed that China still has plenty of room available to adjust interest rates, saying that China's foreign exchange reserves remain ample and can maintain financial security.
China's foreign exchange reserves fell to $3.51 trillion in September, down from $3.55 trillion in August, according to data from the PBC.
"We agree that China's sizable foreign currency reserves offer strong support to its sovereign credit profile," Sheth said, adding that the reserves have been used effectively to offset some potential problems.
For instance, the foreign currency reserves "have served as a buffer against recent capital account volatility," Sheth noted.
