Perhaps the most-important central bank development in the latter half of December has been the ongoing dovish shift in China.
The PBOC continued that with a Christmas statement that hinted at more support for the real economy after a meeting on Friday.
The statement largely focused on housing where it said the aim was to promote healthy growth, protect buyers’ rights and to meet housing demand. That suggests a marginal easing of policy as leaders worry about a hard landing.
The statement said it would strengthen support to the real economy while keeping policy flexibile and appropriate. Last week the PBOC cut its LPR rate for the first time in 18 months. Though it was only a 5 bps move to 2.80%, it’s a signal of what’s to come. Equally important is that it could signal more co-ordinated action with governments to boost the sluggish economy.
The statement noted a severe external environment and unrelenting global pandemic. The reality of that may be hitting home with 206 covid cases today, breaking the August peak. My chief worry going into the new year is a widespread series of lockdowns in China that break the global supply chain.