Key Policy Changes from China's Central Bank
On September 24, 2024, the People´s Bank of China (PBOC) has introduced several monetary policy measures to support the country´s financial markets, increase liquidity, and stimulate economic activity. These actions include a swap program, a re-lending facility, interest rate adjustments, and changes to regulations in the stock and property markets.
The PBOC implemented a swap program allowing securities firms, funds, and insurance companies to use their assets, including bonds, stock ETFs, and holdings in CSI 300 Index constituents, as collateral for liquidity from the central bank. The program's initial scale is set at CNY 500 billion (USD 70 billion), with the funds directed exclusively for stock market investments.
Additionally, a re-lending facility has been introduced to guide commercial banks in providing loans to listed companies and their major shareholders, focusing on stock buybacks, and increasing shareholdings. The facility is allocated CNY 300 billion, with a lending interest rate of 1.75 per cent for banks. Banks, in turn, are allowed to offer loans at 2.2 per cent, covering companies of all ownership types.
The PBOC also adjusted its interest rates. The benchmark interest rate was lowered from 1.7 to 1.5 per cent, targeting reduced borrowing costs for households and businesses. Furthermore, the one-year medium-term lending facility rate was cut from 2.3 to 2 per cent, which is anticipated to reduce the loan prime rate (LPR) by 0.2 to 0.25 percentage points.
To enhance liquidity within the banking system, the PBOC reduced the reserve requirement ratio (RRR) for commercial banks by 0.5 percentage points. This adjustment is expected to release approximately USD 142 billion in lending capacity. The central bank indicated the possibility of additional RRR cuts later in the year, contingent on market conditions.
In the property sector, the PBOC reduced the minimum down payment requirement for second-home purchases from 25 to 15 per cent, following an earlier reduction for first-home purchases. The central bank also reduced interest rates on existing mortgages by 0.5 percentage points, with estimates suggesting that this could lower household interest payments by CNY 150 billion annually.