beyondbrics

Well, we had a week’s warning and now it’s begun in earnest. China is in loosening mode. Not only that: it wants the world to know it.

The People’s Bank of China cut reserve requirements for all the country’s banks on Wednesday by 50 basis points, effective from December 5. It follows last week’s move when it cut the requirement for a small number of regional banks by the same amount.

As Capital Economics noted in a piece of snap analysis, the move will ease constraints on lending and is the equivalent of injecting Rmb400bn ($63bn) into the money supply.

But that’s a side show. Capital’s note continues:

More important though is the signal this gives to the markets and to investors. The PBC could have achieved the same end of loosening constraints on credit growth quietly through its open market operations. The fact that it chose to act in this more public way is a signal not only that policymakers are loosening but that they want to be seen to be doing so.

Capital reckons more is on the way:

Further reserve requirement cuts will follow over the next few months. Bank lending will pick up. The official statements that follow the annual economic work conference, due to be held anytime now, will give a clue as to whether benchmark rate cuts are likely. For now though, we still think they are not imminent.

China has made no secret of its worry over the danger of a lasting global recession. Now it is showing its determination to act. As Jamil Anderlini reported in the piece just linked to:

Because virtually all of China’s banks are owned by the state and their top executives are all senior Communist party officials, Beijing can adjust monetary policy without having to adjust interest rates or make any public policy shift at all.

So Beijing wants the world to know the time for action is now. It’s not alone in urging Europe’s leaders to get a move on. Is anyone listening?

Related reading:
The eurozone really has only days to avoid collapse, FT
China cuts reserve requirements: real easing at last? beyondbrics
Shanghai shines a light on China’s economy, FT
China fears lasting worldwide recession, FT
China money market rates tumble, FT
China: Just how fine a tuning? beyondbrics
Guest post: China must not loosen policy too quickly, beyondbrics