(Bloomberg) -- China's cabinet vowed to stabilize the economy and called on officials to avoid measures that harm market expectations as the government struggles to control Covid outbreaks across the country including in the financial center of Shanghai.
A State Council meeting led by Premier Li Keqiang on Wednesday called on the nation to prioritize stable growth and to draft contingency plans to deal with possible greater uncertainties, according to state-owned national broadcaster China Central Television. The meeting pledged to stick to the goals set for this year -- including reaching about 5.5% growth -- even though downward pressure on the economy is increasing.
The central bank similarly vowed to provide more support to the economy in a separate statement issued after a quarterly meeting of its monetary policy committee. The People's Bank of China reaffirmed that it will step up the magnitude of monetary policy and make it more forward-looking, targeted and autonomous, according to the statement published late Wednesday.
“With intensified headwinds to growth from local Covid outbreaks and policy makers sticking to full-year targets, we think the urgency for more policy support has increased,” Goldman Sachs Group Inc. economists led by Maggie Wei said in a report. The economists expect more central bank easing steps, including cuts to policy interest rates and the reserve requirement ratio.
China's economy has come under increasing pressure in March as the government locked down cities and provinces and tightened Covid controls to contain infections. Several economists have cut their growth forecasts as the outbreak spreads and weakness in the property market persists.
An key indication of how great a blow the economy has taken will come Thursday morning with the release of government compiled gauges tracking activity in the manufacturing, construction and services sectors. The manufacturing purchasing managers' index is expected to drop to 49.8 for March from 50.2 in February, according to a survey of economists. The 50-level separates expansion from contraction.
Policy Transmission
The quarterly meeting by the PBOC's monetary policy committee identified escalating geopolitical conflicts overseas and increasingly frequent Covid outbreaks domestically as new challenges faced by the economy. It reiterated it will keep liquidity reasonably ample and make credit growth more stable.
The PBOC also vowed to improve the transmission of monetary policy, which may be a response to structural imbalances in credit growth over recent months, the Goldman economists said. Short-term bill financing and loans have been growing faster than longer-term loans, indicating sluggish credit demand and ineffective financing support for investment, they said.
Top financial leaders committed earlier this month to easing regulatory crackdowns, support property and stimulating the economy through monetary policy. However, few concrete steps have yet to be been taken. Economists have pushed back their forecast of another cut in banks' required reserves to the second quarter. A reduction in the interest rate on one-year policy loans is also expected in that quarter, a Bloomberg survey shows.
To expand investment, the cabinet also called for better and faster use of special bonds and pledged to support foreign investment in government bonds, CCTV reported. Data compiled by Bloomberg shows provinces sold special bonds at the fastest pace ever for the first quarter, a sign that infrastructure investment could soon pick up.
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With assistance from Bloomberg
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