According to Reuters, in the context of growing economic difficulties whipped up by the property sector crisis, expectations the central bank will ease policies have surged in China, which were dismissed as ‘simplistic’ and misleading by a newspaper run by the regime.
On Friday Dec. 3, Chinese Premier Li Keqiang announced a potential reduction of banks’ mandatory cash reserves “in a timely way.” However, according to a commentary of the Economics Daily on Monday, China’s monetary policy will be more focused on its continuity and stability while considering the government’s short-term and long-term goals.
The commentary said expectations that the central bank will ease policy “is a rather simplistic interpretation of macro policy, which could easily lead to misunderstandings.”
Economic conditions in China have recently shown further negative signs. Debt-laden behemoth China Evergrande Group warned on Friday that its capability to meet debt repayments is no way certain. The yield on China’s 10-year treasury bonds—the most actively traded in the interbank market—dropped almost 5 basis points in early trade on Monday on the easing expectations.
In a note on Monday, Nomura analysts conveyed their expectations about further worsening of the economy and property sector in particular. They indicated Beijing’s potential need to apply easing measures in spring 2022 to avoid a hard landing, but rejected the possibility of a flood of stimulus to boost the economy.
They said that China would make its policies more targeted to cope with any downward pressure, adding that coordination between monetary policy, fiscal policy and industrial policies will be accelerated.
Since July with a broad-based cut to the amount of cash banks must hold as reserve, the Chinese central bank has ignored market expectations for further policy easing.