China will not hike rates soon, says state media
MAINLAND CHINA & HONG KONG
China is very likely to exit from some of its stimulus measures as the economy improves, but there will not be any interest rate hike soon, a leading state newspaper said on its front page Thursday (26 November).
Chinese officials have been talking about gradually winding back stimulus since the summer, alongside evidence of a rebounding economy fuelled by strong export growth and a coronavirus outbreak that is now under control domestically. The People’s Bank of China (PBOC) remains on course to taper its emergency support even as a string of defaults by government-linked companies sent tremors through the credit markets recently.
In a separate quarterly report released by the PBOC Thursday, it pledged to keep monetary policy “normal” for as long as possible.
Government bond yields have risen sharply since the middle of the year amid signs of an economic recovery and expectations of a withdrawal of monetary stimulus. Traders have also been pricing in the possibility that banks will boost the benchmark interest rate for loans, known as the loan prime rate.
The PBOC has taken a measured approach to monetary support this year, lowering interest rates, injecting liquidity, and giving businesses loan repayment holidays, but has refrained from the massive stimulus seen elsewhere.
Governor Yi Gang told market participants as early as June to start thinking about an exit from the looser financial policies. Several other officials have followed, including Liu Guoqiang, a vice governor at the central bank, who said earlier this month that an exit is likely “sooner or later”. Former Finance Minister Lou Jiwei said almost two weeks ago that it was time to study an orderly exit of loose monetary policies. – Bloomberg News.
The Shanghai Composite Index added 0.22% to 3,369.73. The Hang Seng Index rose 0.56% to 26,819.45.
REST OF ASIA
Indonesia’s lenders are pushing back against central bank pressure to further lower interest rates for their customers, a step policymakers believe can help pull the economy out of recession.
The banks say the real problem is that people do not want to borrow in the first place. Loans shrank in October for the first time on record, down 0.47% from the year-earlier period. Bank Indonesia Governor Perry Warjiyo said the contraction was due to lenders’ risk averse attitude and could have been avoided if they had lowered rates for customers in line with central bank easing.
Banks’ reluctance to cut borrowing costs poses a hurdle for President Joko Widodo’s plan to lift Southeast Asia’s largest economy out of its first recession in more than two decades. People are limiting their spending as unemployment surges to a nine-year high and businesses are delaying investments as the country grapples with Southeast Asia’s worst coronavirus outbreak, at more than 500,000 total cases.
“Why haven’t loan rates declined yet? Because of risk perception by banks,” Warjiyo said at a 19 November monetary policy briefing. The central bank is meeting with lenders and businesses to boost lending, with sectors including food and beverages, telecommunications, and basic minerals likely to drive the demand, he said Tuesday (24 November).
Bank Rakyat shares were among the biggest laggard in Indonesia’s stock benchmark on Thursday, declining 0.9% as of midday break, while the Jakarta Composite Index surged 0.7%. BCA gained 0.2%.
Banks have reason for being hesitant to lend: Non-performing loans have stayed above 3% since May as individuals and companies struggle to repay debts, which could put pressure on banks’ balance sheets. The Financial Services Authority (FSA) said it is only a matter of time until lending rates drop; the main issue holding banks back is ongoing loan restructuring, according to Chairman Wimboh Santoso. More than IDR932t of loans had been restructured this year as of 26 October, equivalent to about 17% of total borrowing. – Bloomberg News.
Australia’s S&P/ASX 200 Index was down 0.22% at 6,621.80 on Friday morning, extending Thursday’s 0.70% loss to 6,636.40.
South Korea’s Kospi Index slipped 0.07% to 2,624.11 at the open on Friday. It gained 0.94% to 2,625.91 the previous session.
The Taiwan Stock Exchange Weighted Index rose 0.78% to 13,845.66.
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