Last week the PBoC announced that it had begun to withdraw its special easing facilities that were aimed at supporting the Chinese economy through the Covid-19 pandemic, whilst adding that the central bank will continue to be flexible in its stance as growth recovers in the second half of 2020.
The deputy director of the monetary policy department of the PBoC, Guo Kai stated that ‘Some recent policies and measures were made in response to the coronavirus outbreak, and once they completed their mission they have exited’ adding ‘In the next half of the year, the economy will return to normal, and the role of traditional monetary policy may become more obvious, we have entered a more normal state’.
The short-term easing facilities included excess liquidity injection, relending and rediscounting, which in total was approximately CNY9tln (USD1.3tln) in stimulus, will be retired as financial markets normalise. Going forward, credit supplies will be kept in line with the pace of the recovery, not only to prevent excess liquidity from building within the financial system, but also to avoid arbitrage and speculation. The PBoC will keep a close eye to ensure there is reasonable and ample liquidity whilst pushing lending rates and corporate funding costs lower. Although the economy is recovering with both investment and consumption improving, albeit at different rates, the central bank believes investment will be the driving force going forward for the rest of the year as exports may continue to slide in the face of uncertain global growth due to the pandemic.
Earlier today it was announced that China’s dollar-denominated exports and imports both rose in June. Exports were expected to decline 2%, however rose 0.5% following May’s 3.3% drop. Import numbers were even more impressive, expanding 2.7% YoY, the consensus forecast was for a 9.0% decline.