China asks banks to increase lending

Officials from the People’s Bank of China (PBOC) met with bank executives on Friday. Officials have called on banks to increase lending to support the economic recovery.

Chinese officials have sought support against a slowing economic recovery by meeting with banks and stock exchanges.

The authorities requested the adjustment and optimization of housing loans (mortgages), as well as credit improvement.

The meeting also discussed the measures taken with the financial sector to prevent and reduce the risks of local government indebtedness.

A NEW ADDITION TO PREVIOUS CALLS

China has repeatedly asked its banks to raise lending rates to support the economy. Despite calls from Chinese authorities, banks provided the lowest monthly loan amount since 2009 in July.

The decline in lending is seen as another sign of weak demand in China, raising the risk of prolonged deflationary pressure.

In a statement made today by the PBOC, it was noted that large financial institutions, especially large state-owned banks, should increase their use of credit and avoid large fluctuations in loans.

The Central Bank also said in its statement that regulators and financial institutions should coordinate and strengthen such monitoring to reduce risks associated with local government debt.

I WAS GOING TO SURPRISE LOWER INTEREST

Faced with the slowdown in the economic recovery, the PBoC lowered the reference rate again after the June cut, indicating that it will opt for monetary easing.

In the statement issued by the PBoC, it was reported that the 1-year interest rate (MLF) was reduced by 15 basis points from 2.65 percent to 2.50 percent.

The Central Bank had lowered the policy interest rate by 10 basis points from 2.75 percent to 2.65 percent in June.

Analysts are assessing the unexpected interest rate cut as a response to the sudden contraction in the volume of new loans in July.