China's central bank rolled out targeted easing measures to bolster support for sectors deemed strategic by Beijing, as policymakers seek to ensure a strong start to the year.

The People's Bank of China will cut rates on its structural policy tools by 0.25 percentage point, lowering the rate on one-year relending facilities to 1.25%, Deputy Gov. Zou Lan said at a press briefing Thursday.

Zou also said the central bank will increase quotas for several relending tools to step up support for agriculture, technology and innovation, as well as private enterprises.

In addition, China will lower the minimum down-payment ratio for commercial property mortgages to 30% to help reduce inventory in the commercial-real-estate market, Zou said.

Thursday's measured easing came as China's recent sliding growth momentum stoked concerns around Beijing's unwillingness to act more aggressively amid a yearslong property slump that has yet to bottom out. If Beijing is to jump out of its reactive policy mode, fiscal policy needs to take the front seat in driving demand, with monetary easing mainly to help facilitate government borrowing, economists said.

Looking ahead, Zou said there is still room to cut interest rates and banks' required reserve ratios, without specifying a timeline. A stable yuan and banks' stabilizing profit margins have created room for rate cuts, Zou said.

However, with exports likely to remain a strong growth driver this year amid expected tepid domestic demand, Citi economists said rate cuts might not happen soon.

The central bank will also conduct flexible government bond trading operations, alongside other liquidity tools, to maintain ample liquidity and create a supportive monetary and financial environment for the smooth issuance of government bonds, Zou added.

In response to criticisms that China is devaluing the yuan to gain a competitive edge globally, Zou said that China let the market play a decisive role in exchange rate formation, reiterating Beijing's stance on maintaining a stable yuan. "As a responsible major power, China has neither the need nor the intention to gain a competitive advantage in international trade through currency devaluation", Zou said.

China's record-breaking annual trade surplus of more than $1 trillion has sparked renewed scrutiny of the value of the tightly managed Chinese yuan. The trade milestone is partially the result of a real depreciation of the yuan due to China's low inflation compared with its trading partners, said economists, including those from the International Monetary Fund.

The renewed scrutiny came even as the Chinese currency performed remarkably well in the past year, with the onshore yuan recently strengthening beyond the key threshold of 7.00 against the U.S. dollar for the first time since May 2023. But Gavekal Dragonomics estimated that the yuan's real effective exchange rate--adjusted for price levels--is down about 15% from its 2022 high.

While expectations for further yuan strength have grown recently, Barclays's analysts said in a recent note that they expect "more aggressive measures to ward off appreciation pressures given the weak domestic growth backdrop and reliance on exports."

For PBOC's Zou, the yuan's recent appreciation reflects a weakened dollar and easing geopolitical tensions between China and the U.S., and the trend doesn't indicate a shift in fundamental policy, he said Thursday.


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