China's Bold Monetary Moves Ignite A-Share Surge and Market Optimism

On September 24, China's central bank announced a series of measures aimed at supporting the stock market, which included lowering the reserve requirement ratio (RRR) and interest rates, along with reducing existing mortgage rates. These policies caused significant gains in the A-share market, with major indices rising over 4% on the day, marking the largest single-day increase since July 2020.

The People’s Bank of China revealed further actions on September 27, implementing a 0.5 percentage point reduction in the RRR, alongside a 20 basis point cut in the 7-day reverse repo rate, the latter being the largest rate cut in nearly four years. Analysts interpret these moves as a strong commitment by the central bank to maintain a supportive monetary policy, signaling a determination to achieve economic and social development goals for the year.

This substantial interest rate reduction is expected to have wide-ranging impacts, including the possible lowering of the Loan Prime Rate (LPR) and other benchmark rates by 20 to 25 basis points. Such adjustments would further decrease corporate financing costs and alleviate household mortgage burdens, potentially stimulating the real estate sector's recovery.

Market confidence has been buoyed by these monetary policy shifts. Recent policy interventions have led to a sharp rise in market expectations, with the Shanghai Composite Index breaking successive key levels and a significant increase in trading volumes, reflecting optimism about China's economic trajectory.

Looking ahead, the central bank plans to intensify counter-cyclical measures, including the introduction of new financial policies targeting the real estate sector and additional tools to support capital markets. This approach is seen as a concerted effort to bolster market stability and foster a conducive environment for economic growth.

According to some economists, further actions may be forthcoming, potentially involving additional reductions in the RRR and policy rates, creating a more favorable financial environment for economic recovery in the final quarter of the year.