China's house prices fall further, economic gloom deepens

Thu Sep 18, 2014 7:49am EDT
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By Xiaoyi Shao and Lu Jianxin

BEIJING/SHANGHAI (Reuters) - Worries that China's economy may be slowing further intensified on Thursday as data showed home prices fell for the fourth straight month, adding to expectations that Beijing will need to do more to stimulate activity.

For now, policy easing is likely to come in the form of help to the most vulnerable sectors, rather than more aggressive steps such as cutting interest rates, but authorities are ready to step in with bolder measures if unemployment rises, policy insiders told Reuters.

China's central bank reportedly stepped in this week to avert any further shocks to the world's second-largest economy.

The People's Bank of China offered to lend $81 billion to big banks to reduce the risk of a credit crunch and a jump in interest rates heading into the long "Golden Week" holidays in early October, when demand for cash typically soars.

Despite the move, short-term lending rates dipped only briefly on Thursday, and traders said borrowing costs will start to rise again soon unless the PBOC continues to pump money into the system, highlighting growing nervousness in the market.

"Chinese authorities will likely introduce more supportive policies, including favorable tax and mortgage policies, before the end of this year to ease the downward pressures on the property market," ANZ economists Liu Li-Gang and Zhou Hao said.

"We thus expect more monetary policy easing in the remainder of this year, if the upcoming data continue to remain lukewarm. We cannot discount the possibility of an outright 50 basis point RRR cut (in bank reserve levels) for the whole banking system, or even a policy rate cut."

Analysts at Barclays were even more certain that policymakers will have to administer stronger medicine soon.   Continued...

A woman rides past the headquarters of the People's Bank of China, the Chinese central bank, in Beijing, April 3, 2014.   REUTERS/Petar Kujundzic/Files