PBOC Adds to Selective Loan Quotas as Targeted Approach Now Seen

China’s central bank has allocated money for farm and small company lending as it sticks to a targeted approach to monetary easing after its November interest-rate reduction spurred a speculation-fueled stock market rally.

The People’s Bank of China gave a 20 billion yuan ($3.2 billion) re-loan loan quota to banks to support agriculture and 30 billion yuan to boost smaller companies, according to a statement on its website. The move aims at lowering financing costs, it said.

Credit data Thursday underscored challenges for a central bank trying to revive growth without exacerbating risks, as new loans missed economists’ estimates in December even as equity investors and local governments contributed to a surge in shadow banking. The main stock index has jumped more than 30 percent since the rate cut was announced on Nov. 21.

“We believe the government will delay interest-rate and RRR cuts and instead revert to targeted measures to inject liquidity,” Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd., wrote in a note to clients released Friday. “Additional monetary easing is necessary, as economic conditions in China remain difficult, and overall lending rates remain high. However, we also believe the government must be more particular with its policy choices.”

China central bank’s outstanding re-lending, which aims at supporting agriculture and smaller companies, reached 267.8 billion yuan at the end of 2014, an increase of 99.4 billion yuan compared to the beginning of 2014, according to a statement on the PBOC’s website.

‘Targeted Control’

The re-loan decision came a day after the central bank’s annual meeting on credit policy where it reiterated plans to guide stable growth in credit and create a “neutral and appropriate” financial environment for growth. The PBOC will “enhance targeted control” to “promote optimization of the credit structure,” according to a PBOC statement Thursday.

Money supply will slow this year on a deceleration of bank deposits and yuan positions, according to an article published in the China Securities Journal’s front page. China needs to cut interest rates and bank’s required reserve ratios in 2015 amid deflation and downward pressure on the economy, it said.

— With assistance by Xin Zhou

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