China's central bank lowered interest rates and inserted liquidity into the banking system as Beijing assembled a last-ditch stimulus assault to pull economic growth back towards this year's roughly 5% target. More fiscal measures are expected to be announced before China's week-long holidays starting on Oct. 1, after a meeting of the Communist Party's top leaders showed an increased sense of urgency about mounting economic headwinds.
On the heels of the Politburo huddle, China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of fresh fiscal stimulus, two sources with knowledge of the matter have told Reuters.
Capital Economics chief Asia Economist Mark Williams estimates the package "would lift annual output by 0.4% relative to what it would otherwise have been".
"It's late in the year, but a new package of this size that was implemented soon should be enough to deliver growth in line with the 'around 5%' target", he said.
Chinese stocks are on track for the best week since 2008 on stimulus expectations.
The world's second-largest economy faces strong deflationary pressures due to a sharp property market downturn and frail consumer confidence, which have exposed its over-reliance on exports in an increasingly tense global trade environment. A wide range of economic data in recent months has missed forecasts, raising concerns among economists that the growth target was at risk and that a longer-term structural slowdown could be in play. The data showed industrial profits swinging back to a sharp contraction in August.
The move is likely to release 1 trillion yuan ($142.5 billion) in liquidity into the banking system and was accompanied by a cut in the benchmark interest rate on seven-day reverse repurchase agreements by 20 bps to 1.50%. Flagged by Governor Pan Gongsheng, the People's Bank of China trimmed the amount of cash that banks must hold as reserves, known as the reserve requirement ratio (RRR), by 50 basis points, the second such reduction this year.