Archive for ‘Central bank’

10/03/2019

China central bank pledges more policy support as bank lending slides

BEIJING (Reuters) – China’s central bank on Sunday pledged to further support the slowing economy by spurring loans and lowering borrowing costs, following data that showed a sharp drop in February’s bank lending due to seasonal factors.

The central bank is widely expected to ease monetary policy further this year to encourage lending especially to small and private firms vital for growth and job creation.

The central bank’s “prudent” monetary policy will emphasize on counter-cyclical adjustments, said People’s Bank of China (PBOC) Governor Yi Gang, using a phrase that implies the need to fight an economic slowdown.

“The global economy still faces some downward pressure and China faces many risks and challenges in its economy and financial sector,” Yi said at a press conference on the sidelines of the country’s annual meeting of parliament.

There is still some room for the PBOC to cut reserve requirement ratios (RRRs), although the amount of room is less compared with a few years ago, Yi said.

Chinese banks made 885.8 billion yuan ($131.81 billion) in net new yuan loans in February, down sharply from a record 3.23 trillion yuan in January, when several other key credit gauges also picked up modestly in response to the central bank’s policy easing.

Yi said combined January-February new loans and total social financing (TSF), a broad measure of credit and liquidity in the economy, could paint a more accurate picture as they showed a rise of 374.8 billion yuan and 1.05 trillion yuan from a year earlier, respectively.

DEBT DEFAULTS

Analysts say China needs to revive weak credit growth to help head off a sharper economic slowdown this year, but investors are worried about a further jump in corporate debt and the risk to banks as they relax their lending standards.

Corporate bond defaults hit a record last year, while banks’ non-performing loan ratio notched a 10-year high.

Pan Gongsheng, a vice governor at the PBOC, told the same briefing that China will control the amount of bond defaults in 2019, using both legal and market means.

Pan conceded that bond defaults increased last year, but the level of defaults was not high compared with China’s average bad loan ratio.

Premier Li Keqiang told parliament on Tuesday that monetary policy would be “neither too tight nor too loose”. Li also pledged to push for market-based reforms to lower real interest rates.

Chinese policymakers have repeatedly vowed not to open the credit floodgates in an economy already saddled with piles of debt – a legacy of massive stimulus during the global financial crisis in 2008-09 and subsequent downturns.

Sources have told Reuters the central bank is not ready to cut benchmark interest rates just yet, but is likely to cut market-based rates.

Yi said the downward trend in TSF has been initially curbed and broad M2 money supply growth will be more or less in line with nominal gross domestic product growth in 2019, Yi added.

Central bank data showed growth of outstanding TSF, a rough gauge of broad credit conditions, slowed to 10.1 percent in February from January’s 10.4 percent, versus a record low of 9.8 percent in December.

M2 money supply grew 8.0 percent in February from a year earlier, missing forecasts, the central bank data showed. Yi said China’s macro leverage ratio, or the amount of debt relative to GDP, was at 249.4 percent at the end of 2018, a fall of 1.5 percentage points from a year earlier, Yi said.
Analysts note there is a time lag before a jump in lending will translate into growth, suggesting business conditions may get worse before they get better.
Most economists expect a rocky first half before conditions begin to stabilize around mid-year as support measures begin to have a greater impact.
China’s economic growth is expected to cool to around 6.2 percent this year, a 29-year low, according to Reuters polls.
Growth slowed to 6.6 percent last year, with domestic demand curbed by higher borrowing rates and tighter credit conditions and exporters hit by the escalating trade war with the United States.
Source: Reuters
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16/02/2019

Bank lending for ‘real economy’ key to boost China growth – central bank official

SHANGHAI (Reuters) – China should encourage its banks to support smaller, private firms in the real economy, rather than forced lending or policies such as quantitative easing, a state newspaper quoted a central bank official as saying on Saturday.

“The central bank doesn’t wish to use administrative methods to require banks (to lend),” Sun Guofeng, head of the monetary policy department at the People’s Bank of China (PBOC), told the Financial News, a bank publication.

“It wants to establish positive encouragement mechanisms though monetary policy tools to encourage banks to actively increase their support for the real economy, especially towards smaller and privately-owned firms,” Sun said.

The comments come a month after Sun wrote a commentary in which he argued that problems with timely capital replenishment, bank liquidity gaps and poor rate “transmission” are three major constraints on banks’ supply of credit.

 

In the interview with the Financial News, Sun said monetary policy transmission had “noticeably improved”, showing that steps to enhance transmission mechanisms had been effective.

He said the central bank would increase the strength of innovation in monetary policy tools.

Perpetual bond issuance “is only one breakthrough” in reducing capital constraints on banks, Sun said, adding that “other methods” could be used in the future.

 

He said that quantitative easing was neither necessary nor possible at the moment, noting that under China’s financial system the significance of the central bank buying Chinese treasury bonds on the secondary market is limited, and that the PBOC is barred from buying the instruments on the primary market.

China’s banks made the most new loans on record in January following a series of moves to boost lending as authorities try to prevent a sharp slowdown in the world’s second-largest economy.

Source: Reuters

08/02/2019

India’s central bank delivers a pre-election rate cut gift to Modi but is it enough?

NEW DELHI (Reuters) – The Reserve Bank of India’s surprise decision to cut interest rates for the first time in 18 months on Thursday is a pre-election stimulus gift from a compliant central bank for Prime Minister Narendra Modi.

But businesses and farmers – and even some of his own supporters – say it may be too little, too late to help the economy ahead of voting, which must be held by early May.

The quarter-point reduction in the benchmark repo rate follows intense pressure late last year on the RBI to listen to government and business concerns and ease monetary policy.

The threat to the central bank’s autonomy led to the departure in December of its governor, Urjit Patel, and his replacement by Shaktikanta Das, whose views were much more in line with the Modi administration.

There have been signs that Modi’s support has crumbled in parts of a countryside that supported his Hindu nationalist Bharatiya Janata Party (BJP) in the last election in 2014. Among the voters’ biggest concerns are the impact of low farm prices on rural incomes and whether there is enough job creation.

The rate cut will benefit Modi’s government as it will boost economic growth and lending to small businesses, according to Ashwani Mahajan, a leader of the economic wing of the powerful Hindu nationalist group, Rashtriya Swayamsevak Sangh, which is the fountainhead of the BJP.

But it still wasn’t enough, he said.

“The new governor has passed the litmus test, though with 50 percent marks,” said Mahajan, co-convenor of the Swadeshi Jagran Manch, adding that the rate cut should have been at least half a percentage point.

Four of six members of the RBI’s monetary policy committee (MPC) voted to cut the rates, while all six members voted for a change in the monetary policy stance to “neutral” from “calibrated tightening”.

The RBI also eased bank lending restrictions for non-banking finance companies and raised the limit on “collateral free” farm loans in an attempt to boost lending to nearly 120 million rural households.

In recent weeks, it has also eased curbs on some state-owned bank lenders and is set to provide the government with a bigger dividend out of surplus central bank funds.

The BJP welcomed the decisions as they will help to dispel any perceptions that the government has not addressed credit issues facing businesses. Some of those issues worsened dramatically after the government suddenly banned the use of then existing high-denomination banknotes in 2016 and hastily introduced a new national sales tax in 2017.

The rate cut comes after the government introduced a budget last week that also provided stimulus for the economy, including handouts for farmers and modest tax cuts for the lower middle class.

Gopal Krishna Agarwal, the BJP’s spokesman on economic affairs, said the government had been asking the central bank to cut rates for some time.

“The decision would supplement government’s measures announced in the budget and will boost lending to farmers, housing and manufacturing sectors,” he said.

SURPRISE FOR MARKETS

Despite all the lobbying that has been going on, the rate cut was still a surprise for financial markets. Most economists had expected rates to be left unchanged and then possibly cut at the next meeting in April.

But the faster-than-expected move isn’t likely to help the economy much, they said.

“The rate cut is unlikely to give a major fillip to investments as capacity utilisation still remains low in the manufacturing sector,” said Devendra Kumar Pant, chief economist, India Ratings & Research, the arm of rating agency Fitch.

It could sow the seeds for inflation – especially when added to the fiscal stimulus in the budget – in the second half of the next financial year, which begins on April 1, he warned.

Mark Williams, Chief Asia Economist of Capital Economics in London, said there was a growing perception that the central bank had allowed its focus on controlling inflation to slip, and therefore higher inflation and higher interest rates were likely over the long term.

Some economists also felt that there was a danger that a largely independent central bank could come under government pressure – providing too much stimulus for the economy after last week’s budget handouts.

“TOO LITTLE TOO LATE”

Some politicians and stock market analysts said the rate cut decision may not improve Modi’s chances in the election as the banks could take time to pass on rate cut benefits.

The BJP lost three key state elections to the opposition Congress late last year and national polls have indicated that Modi faces a tough re-election battle against a resurgent opposition as Congress and regional parties form alliances.

The rate cut also underlines fears about slowing economic growth.

The MPC announced on Thursday that it had trimmed its economic growth forecast to 7.2-7.4 percent for the period from April-September this year from its previous 7.5 percent estimate.

Business and farm leaders said they were also sceptical about the impact of the rate cut – and said it was the inability to borrow that was the biggest problem.

“Our loan requirement has been rising as fertiliser and diesel prices are going up. Many times, we borrow from private moneylenders at a rate of 24 percent as banks refuse to lend us more,” said Deshpal Rana, a farmer from Shamli in the northern state of Uttar Pradesh.

Praveen Khandelwal, secretary of the Confederation of All India Traders, a traders lobby group, said a majority of India’s traders and small manufacturers were finding it difficult to borrow from banks, who are struggling to deal with $150 billion in distressed assets.

“Today’s repo rate would largely benefit bankers rather than borrowers,” he said.

Source: Reuters

31/01/2019

Bank of India, Maharashtra to come off central bank watchlist – source

NEW DELHI (Reuters) – Bank of India and Bank of Maharashtra will be dropped from the Reserve Bank of India’s prompt corrective action plan (PCA) for state-owned banks with high levels of bad debt and inadequate capital, a source told Reuters on Thursday.

The move follows improvements in their asset quality and capital ratios and a ruling by the RBI on Thursday, said the source, who asked not to be identified as the discussions are private.

The RBI’s board for financial supervision chaired by new governor Shaktikanta Das took the decision at its meeting on Thursday after reviewing the latest quarterly performance of all 11 banks on the PCA list, the source said.

Bank of India shares rose as much as 5 percent after the news before ending 3.65 percent higher. Bank of Maharashtra rose as much as 5.6 percent before ending up 3.2 percent.

A third lender may also be removed from the list pending the outcome of a technical clarification from the bank, the source added.

The RBI did not respond to an email seeking comment.

The 11 state-owned lenders on the RBI’s list are barred from issuing fresh big-ticket loans or expanding operations and their financial performance is given close scrutiny.

There are 21 listed state-run banks in India that provide about two-third of the total loans. With nearly half of them under a PCA plan and the rest cautious due to a record $150 billion in bad debt, the government has been keen the curbs be relaxed to boost their ability to lend.

Bank of India’s net non-performing assets fell to 5.87 percent in the October-December quarter from 7.64 percent in July-September. Its capital adequacy ratio improved to 12.47 percent from 10.93 percent.

Bank of Maharashtra’s net non-performing assets fell to 5.91 percent from 10.61 percent while its capital adequacy improved to 11.05 percent from 9.87 percent.

The government increased its planned capital infusion into state banks by 410 billion rupees ($5.76 billion) to 1.76 trillion rupees in the current fiscal year ending March.

Source: Reuters

10/12/2018

Urjit Patel: India’s central bank governor resigns

The Reserve Bank of India (RBI) Governor Urjit Patel arrives to attend a news conference after a monetary policy review in Mumbai, India, October 5, 2018. REUTERSImage copyrightREUTERS
Image captionRumours that Mr Patel was going to quit have been swirling around for weeks

India’s central bank governor Urjit Patel has resigned from his post citing “personal reasons”.

His resignation comes amid reports of a rift between the Reserve Bank of India (RBI) and Prime Minister Narendra Modi’s government,

This marks a rare case of a serving governor leaving his job midway through his five-year term.

Correspondents say the move is likely to undermine confidence in the economy and cause the rupee to fall.

In a statement, Mr Patel thanked his staff and officers, calling them the reason for the “bank’s considerable accomplishments in recent years”.

But speculation has been mounting for weeks that Mr Patel could resign over government pressure on the bank.

In late October, the RBI’s Deputy Governor Viral Acharya fired what appeared to be a broadside against attempts to undermine the bank’s independence.

“Governments that do not respect central bank independence will sooner or later incur the wrath of the financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution,” he said.

The government reportedly wants the RBI to allow ailing state-owned banks, groaning under bad loans to industries, to resume lending to small businesses. It also wants the regulator to lower interest rates to inject much-needed liquidity into the economy.

Reports say the government also wants to access the RBI’s surplus reserves.

Fears for economy

Prime Minister Modi and Finance Minister Arun Jaitley have issued statements voicing appreciation for Mr Patel’s work.

Mr Modi tweeted that Mr Patel left behind a “great legacy” while Mr Jaitley described a “deep sense of appreciation” for him.

However, others have responded with concern.

A former governor of the RBI, Raghuram Rajan, said that Mr Patel’s resignation should be seen as a statement of protest. Former Finance Minister Yashwant Sinha said “the resignation is a clear sign of the government trying to interfere with the working of the RBI”.

“Although India’s $2.6tn (€2.3tn; £2tn) economy has recently been boosted by a strong performance in consumer spending and manufacturing, the rupee has fallen by about 15% against the surging dollar so far this year, private investment remains slack and there are doubts on whether the economy will accelerate further,” says the BBC’s Soutik Biswas.

“The trade deficit, inflation, and high oil and commodity prices are a major concern,” our correspondent adds.

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