Economists Project PBoC to Continue Reserve Requirement Rate Cuts

October 22, 2018

China’s central bank is increasingly expected to cut the amount of funds banks need to hold as reserves next year. That should help economic growth hold up in the face of both internal and external challenges, with a Reuters poll showing economists keeping forecasts for gross domestic product growth in 2018 and 2019 unchanged from a July poll. The median forecast of 73 economists polled by Reuters was for GDP growth in the world’s second-biggest economy to expand by 6.6% in 2018 and 6.3% in 2019.

 

Economists in the poll expect the People’s Bank of China to keep the reserve requirement rate (RRR) steady for the rest of this year, but forecast a 1.5 percentage point reduction in the rate to 13 percent by the end of 2019, a deeper cut than the 0.75 percentage point cut tipped in the July poll. The current RRR is 14.5%.  Economic data over the past few months has shown faltering domestic demand, with record-low fixed asset investment growth, tepid expansion in industrial output and weaker growth in consumer spending. And as U.S. President Donald Trump ramps up pressure on China’s trade policies, Beijing has shifted to a loosening stance as it looks to backstop growth. The PBOC has cut reserve requirements for lenders four times this year, with the latest cut taking effect on Monday. Beijing has also softened its stance on a campaign to reduce credit risks, pledged to speed up infrastructure investment, and increased tax rebates for exporters.

 

Factory surveys for September showed growth sputtered, as export orders contracted. However, even with the expected moderation, China is expected to reach its 2018 goal of 6.5% growth. Exports have held up better than expected in the face of new U.S. tariffs, though growth should slow in the future.

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