China’s central bank seeks to calm markets with support pledge

Bloomberg

China’s central bank pledged to support the economy through targeted financing for small businesses and a quick resolution of the ongoing crackdown on technology firms in Beijing’s latest bid to reassure investors nervous about growth and Covid lockdowns.
The People’s Bank of China (PBOC) “will step up the prudent monetary policy’s support to the real economy, especially for industries and small businesses hit hard by the pandemic,” it said in a statement.
The central bank said it will promote healthy and stable development of financial markets and provide a good monetary and financial environment. It reiterated it will keep liquidity reasonably ample.
The comments followed the PBOC’s statement to cut the amount of money that banks need to keep in reserve for their foreign currency holdings, an attempt to bolster the currency after it came under pressure amid record capital outflows.
The central bank’s remarks buoyed markets, with the benchmark CSI 300 Index climbing as much as 1.5%, after it dropped 4.9%, the biggest loss since February 2020.
The PBOC also addressed concerns around a regularity crackdown on tech firms, saying it will “steadily push forward and complete the rectification of large platform companies as quickly as possible, and facilitate the healthy development of platform economy.”
The central bank attributed recent market volatility to changes in the expectations and sentiment of investors, adding that China’s economic fundamentals remain good.
While the PBOC has been cautious with its policy moves so far, refraining from cutting interest rates in April and providing only a modest cash boost to banks, China’s Covid Zero approach is putting the economy under major strain.

Focus will now shift to the Communist Party’s Politburo meeting, which usually takes place at the end of April and will cover economic policy matters. Several prominent government-linked advisers and economists have called on Beijing to ease policies for the property and internet sector and provide direct stimulus to households.
A Bloomberg index tracking a set of early economic indicators plunged in April to its worst level in two years. Morgan Stanley downgraded its growth forecast by 40 basis points to 4.2%, while Daiwa Capital Markets and TD Securities also lowered their projections.
Interbank liquidity remains flush, and strict Covid curbs in some major business hubs have threatened to limit the impact of any broad easing.
“I expect policy easing to remain targeted with a focus on helping smaller companies and sectors harder hit by Covid disruptions,” said Liu Peiqian, a China economist at NatWest Group Plc. “More forceful and broad-based easing” may be rolled out after Covid outbreaks are brought under control, she said.
Last week, Governor Yi Gang highlighted the central bank’s focus on keeping inflation under control, and stressed its targeted approach to helping the economy. The bank’s statement echoed that strategy, with a pledge to add 100 billion yuan ($15.2 billion) of quota to its relending program to support the production and storage of coal. The program provides loans to commercial banks for lending to targeted sectors.
The central bank also said it would set up relending funds for the aviation sector, on top of expanding the program to cover more small businesses, technological innovation and elderly care.
Xing Zhaopeng, a senior China strategist at Australia & New Zealand Banking Corp. said the central bank’s signal in its statement “is a bit soft,” adding the government “should take more top-level policies beyond the PBOC.”