28 Apr 2015
PBOC set to introduce new easing measures – WSJ
FXStreet (Mumbai) - The Wall Street Journal (WSJ) reported on Tuesday that the People’s Bank of China is set to introduce new easing measures aimed at smoothing implementation of a local-government debt restructuring.
China’s version of QE?
The WSJ reports that, “ the aim is to encourage banks to buy new bonds issued by local governments. These bonds replace loans owed by local government financing vehicles. The first wave of refinancing is under way, with an initial tranche of bonds worth 1 trillion yuan ($160 billion). The trouble is that the new bonds have a longer duration and lower interest rates than the debt they replace, so banks are hardly keen to make the swap.”
The PBOC would swap long-term loans for local government bonds now held by banks. This would give the banks extra liquidity, which the banks could pass-on to the real economy at a higher rate.
However, this is not Quantitative Easing (QE), which involves outright purchases of bonds or other assets by central banks.
China’s version of QE?
The WSJ reports that, “ the aim is to encourage banks to buy new bonds issued by local governments. These bonds replace loans owed by local government financing vehicles. The first wave of refinancing is under way, with an initial tranche of bonds worth 1 trillion yuan ($160 billion). The trouble is that the new bonds have a longer duration and lower interest rates than the debt they replace, so banks are hardly keen to make the swap.”
The PBOC would swap long-term loans for local government bonds now held by banks. This would give the banks extra liquidity, which the banks could pass-on to the real economy at a higher rate.
However, this is not Quantitative Easing (QE), which involves outright purchases of bonds or other assets by central banks.