People walk past the headquarters of the People & # 39; s Bank of China (PBOC), the central bank, in Beijing, China, September 28, 2018.
Jason Lee | Reuters
BEIJING – China's central bank removed several sentences of policy restraint in a quarterly report. Economists said a move could be a sign that incentives are on the way.
The People & # 39; s Bank of China has made little change in monetary policy since China shook off the worst effects of the pandemic last year. Economic growth has slowed in recent months due to regulatory crackdowns in the real estate sector, power shortages in factories and lackluster consumer spending.
The PBOC's third quarter monetary policy report, released late Friday, left out a hint that the central bank would not use large-scale, flood-like stimulus. It is a sentence that indicates political reluctance and has appeared in statements by the central government at least since 2019, before the pandemic.
"In our view, these cuts represent an official change in the PBoC's political stance and set the stage for more determined monetary and credit easing," said Ting Lu, Nomura's chief economist for China, in a report on Sunday. He noted that China is in its worst economic slowdown since 2015, excluding the first outbreak of the Covid-19 pandemic.
Lu pointed out other deletions, including one on money supply control – a measure of cash and other easily usable currencies. The expansion of the money supply typically stimulates spending in the economy.
The deleted reference to money supply was first mentioned in a November 2020 report as the central bank was about to end pandemic-era incentives, Macquarie's chief economist for China said Larry Hu in a note on Sunday.
"This time, the removal of the phrase (s) sets the stage for more monetary easing," Hu said.
In a section on flexible and targeted monetary policy, the PBOC also deleted a reference to maintaining “normal” monetary policy.
Hu said the PBOC had become more cautious on the inflation outlook. Although a subheading in the central bank's latest report described the pressure from rising prices as "controllable", the authors deleted a reference to the fact that there was no basis for long-term inflation or deflation.
Small change to the curbs
Despite these signals, economists expect Beijing to move secretly.
The PBOC has left its key rate unchanged for the 19th month in a row since April 2020.
"I don't think there's going to be a big change in monetary policy," said Bruce Pang, director of macro and strategic research at China Renaissance, according to a CNBC translation in Chinese.
Instead, deleting those more "absolute" statements gives policy makers more room for future operations, Pang said, noting that policy makers have not used the phrases much in the last month or so.
We believe the worst is yet to come for both the real estate market and the wider economy, and only then (maybe spring 2022) will we see some real changes in real estate restrictions.
China's chief economist Nomura
Despite growing concerns about the economic slowdown, the PBOC maintained its strict stance on the real estate market, which, along with related industries, accounts for about a quarter of the Chinese economy.
Industry giant China Evergrande has been on the verge of default in recent months after Beijing sought to reduce real estate developers' reliance on heavy debt for growth.
The central bank said in the report on Friday that the risks in the real estate market are manageable and that nothing will change in the overall healthy development of the industry.
"We believe the worst is yet to come for both the real estate market and the wider economy, and only then (maybe spring 2022) will we see some real changes in real estate restrictions," said Nomura's Lu.