China’s Premier called for more active fiscal policy and a central bank publication said additional monetary easing is needed, signaling more support is on the way for the world’s second-biggest economy.
Li Keqiang’s call to aid growth accompanied an announcement of tax breaks for small business, according to a government statement summarizing a cabinet meeting yesterday. Meanwhile, the central bank should cut bank’s required reserve ratios further to deal with deflation risks, said an article in the People’s Bank of China’s newspaper published today.
“To fend off possible deflation, the central bank should continue to adjust tools, from required reserve ratios and benchmark interest rates, at the right time,” the Financial News article said.
“To cope with the current downward pressure on growth and to keep economic operation within a reasonable range, China’s active fiscal policy must become more effective and more efficient,” according to the statement.
The policies suggest China’s budget deficit will widen this year to 2.8 percent of gross domestic product, from 1.8 percent in 2014, Nomura Holdings Inc. economists led by Yang Zhao wrote in a note today.
“These measures should help mitigate the pace of the economic slowdown,” Zhao wrote. “However, such measures tend only to provide a cushion for the economy but cannot drive a turnaround of the growth downtrend.”
China this month cut the amount of cash banks must set aside as reserves by 50 basis points, its first across-the-board reduction since May 2012. It will inject as much as 600 billion yuan ($96 billion) into the banking system, Australia & New Zealand Banking Group Ltd. economists estimated.
