PBOC cuts in rates, reserves do not address property market
Some mainland property stocks were given a boost yesterday morning by the surprise announcement from the country's central bank on Monday that it would cut the cost of lending and ease reserve requirements on banks. But investors who took a punt on property counters in the belief that the government was about to relax measures aimed at hosing down demand and prices could be disappointed.
The consensus among analysts in the wake of the People's Bank of China's announcement was that the 27 basis point cut in the cost of loans was aimed at supporting the financial sector and not intended as a relief measure for the property market or a signal that the campaign to keep a lid on property prices was due to come to an end any time soon.
The central bank itself said the move was intended 'to solve outstanding problems in current economic conditions, [allow for] targeted protection and control [and] maintain stable and fast economic growth'.
But that is not the way the news was greeted by investors when the Shanghai stock market opened yesterday and bank stocks plunged while shares in some property developers bounced strongly.
The reaction underlined once again what a blunt and untargeted policy instrument interest rate settings by a central bank can prove to be.
