By the end of the third quarter of 2023, the People’s Bank of China is expected to cut the ratio — or the amount of cash banks should hold in reserve — for big lenders by 25 basis points, according to median projections. Economists had previously predicted a cut in the last three months of the year.
China’s central bank is likely to cut reserve requirements for major banks sooner than expected as the economic recovery loses momentum, according to the latest Bloomberg survey of economists.
By the end of the third quarter of 2023, the People’s Bank of China is expected to cut the ratio — or the amount of cash banks should hold in reserve — for big lenders by 25 basis points, according to median projections. Economists had previously predicted a cut in the last three months of the year.
A reduction by that amount would reduce the ratio from 10.75 percent to 10.5 percent. The survey respondents saw that the ratio was likely to remain on hold until at least the end of 2024 if trimmed this year.
China’s economic recovery has lost momentum in recent weeks after an initial burst of consumer activity. Data from this month showed that industrial production, retail sales and fixed investment grew more slowly than expected, while inflation is near zero and consumers are reluctant to borrow.
Economists polled by Bloomberg now expect China’s gross domestic product to grow 5.5 percent this year from a year ago, slightly less than a previous estimate of 5.6 percent. The government has set a fairly cautious growth target of around 5 percent for this year.
The slowing economic momentum has led to speculation about whether the central bank will ease policy to boost the recovery. Research from Bloomberg Economics shows that a 25 basis point cut in the RRR would give the economy a bigger boost to growth than a 10 basis point cut in key PBOC interest rates.
Economists polled by Bloomberg predict that yields on one-year policy bonds will remain unchanged this year. They also saw no adjustments to the one-year loan prime rate, a benchmark rate for commercial lenders.
“The government’s conservative GDP growth target of 5 percent for 2023 gives the central bank some room to be patient with monetary policy easing,” said Brian Lee, an economist at Maybank Securities.
He said authorities are instead relying on more targeted policies, such as encouraging more investment in infrastructure and manufacturing, as well as easing city-level real estate.
Other key points in the study:
The growth outlook for the second quarter was cut from 8 percent to 7.7 percent year-on-year, weighed down by the uneven recovery.
Economists expect GDP growth to moderate to 4.9% next year and to 4.6% in 2025.
Forecasts for retail sales growth in 2023 were lowered from 10.2 percent previously to 9.2 percent. Analysts see sales increase by 7.3 percent in 2024, higher than previous forecasts.
Industrial production is expected to grow 5.1 percent this year, up from a previous estimate of 5.5 percent.
Exports are likely to grow by 0.7 percent in 2023, better than a contraction predicted in the earlier survey.
Import growth is stagnating this year, lower than previous expectations for a slight expansion.
Consumer inflation for the year was forecast at 1.7 percent, lower than previous estimates of 2.1 percent.
Producer deflation increased, 1.4% lower than the 0.9% in the previous survey
