In addition to the reductions, Pan dabbled in forward guidance, saying that reserve requirements may be pared again this year. Funds and brokers will be allowed to borrow from the monetary authority to buy stocks, while China is also studying a market stabilisation fund.
The word “bazooka” has been bandied around to describe the initiatives. While they are certainly noteworthy, it remains seen whether they alter the underlying course of the economy, which was in a long-term slowdown well before the COVID-19 pandemic.
Shifts in policy, especially if unveiled with bells and whistles, tend to be greeted as breakthroughs. If what transpired on Tuesday kicks off a new phase in efforts to boost growth, well and good. Should there be little follow through, then the pessimism that has characterised discussions of China’s economy in recent years will persist.
PBOC POLICY EVOLVING IN RIGHT DIRECTION
It’s worth considering how Pan’s performance compares with the reputation that preceded him.
When he arrived in the governor’s office in July last year, China was on the cusp of a nasty run of very poor inflation numbers. Unlike the other major economies, where inflation rose sharply as the pandemic abated, China experienced the opposite: Consumer prices declined for several months and the pace of increases seven months later now hovers worryingly close to zero.
