Program not ‘Chinese version of QE’
Print Edition
CHINA’S latest expansion of a trial program to allow lenders to borrow from the central bank using loans as collateral shouldn’t be seen as the Chinese version of quantitative easing, said Ma Jun, chief economist of the People’s Bank of China’s research department.
The expansion sparked speculation that the PBOC could inject as much as 7 trillion yuan (US$1.1 trillion) through the program.
Denying the speculation, Ma said the expansion was to facilitate liquidity for small and medium financial institutions, and channel more funding to small businesses and agricultural needs. He added the move would not change the PBOC’s previous liquidity target.
“The estimation (of 7 trillion yuan liquidity injection) is not grounded, and the central bank’s decision to expand the range of qualified collateral will not have a significant impact on overall liquidity,” Ma said in a written response to a reporter’s questions in the Securities Times yesterday. “It is impossible to be the Chinese version of QE.”
QE refers to the US Federal Reserve’s monetary easing policy introduced in 2008 to battle a recession following a financial crisis by buying debts and bonds from banks.
The PBOC will also assess the quality of debts and accept only the safer ones as collateral, and not all regional lenders could meet the requirement.
The PBOC said in a statement over the weekend that it would expand the trial to allow lenders in nine provinces and cities including Shanghai and Beijing to borrow from the central bank using loans as collateral.
The program was previously trialed in Shandong and Guangdong provinces last year.
China has also reduced reserve requirement, or the amount of cash lenders must set aside as reserves, three times this year and lowered interest rates five times since November as the economy heads for its weakest annual expansion in over two decades.
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