China is giving its banks leeway to do more lending as it grows more comfortable with inflation numbers. Exchange traded funds have gotten a boost this week on hopes the move will stoke the Chinese economy, which has been showing signs of slowing down.
“You look at the liquidity conditions in China, they’re very good. You look at the quality impetus, the likelihood of government support, it’s very very high,” Tom Quarmby, an analyst at Barclays Capital Inc. in Hong Kong, said in a Bloomberg Television interview. “Whilst lending might be higher risk, it’s just lending, it’s not exotic derivatives business or investment banking.” [Lower Inflation Gives China ETFs Breathing Room]
The central bank said “prudent monetary policy” will still be in place, however,the latest move will put more capital out into the public for lending, and will require a smaller amount that banks must set aside to fall back on.
The People’s Bank of China will cut the reserve requirement ratio for 20 rural banks to 16%, one-half a percentage point less, reports Associated Press. [China ETF Soars 30% from October Low]
The weaker parts of the economy such as the agriculture sector and small business should prosper in the meantime.
Manufacturing data in China was reported as the weakest since 2009, giving more motivation for monetary stimulus as the domestic real estate malaise has been getting thicker. Key interest rate changes are in store for many Asian nations such as China and South Korea, reports Bloomberg News. The PMI reading for November past 49, with any number under 50 signaling a contraction.