(Yicai) Sept. 30 -- The People’s Bank of China rolled out a package of monetary easing measures yesterday aimed at boosting lending to the real economy and key national strategic priorities, following a State Council call for stronger countercyclical macroeconomic policy support.

In the first of four measures, the PBOC said it will trim the interest rate on its pledged supplementary lending, or PSL, by 0.25 percentage point, lowering the one-year PSL interest rate to 1.5 percent from 1.75 percent.

PSL is a monetary policy tool established by the PBOC targeting the China Development Bank, Agricultural Development Bank of China and Export-Import Bank of China. It allows the three policy banks to use high-grade bonds and credit assets as collateral to borrow medium- and long-term funds from the central bank to support key areas of the national economy.

The PBOC's move comes shortly after State Council called for stronger countercyclical macroeconomic adjustments as it outlined economic priorities for the next stage at an executive meeting on Sept. 28. The meeting called for a range of practical incremental policies, the comprehensive use and timely adjustment of monetary policy tools and further measures to stabilize the real estate market, promote employment as well as increase household incomes.

The central bank’s second measure was to expand the scope of sectors eligible for PSL support. Six major infrastructure areas, known as the “six networks,” which are water infrastructure, new power grids, computing infrastructure, next-generation communications networks, urban underground utility networks and logistics networks, will now be included in the program.

The PBOC also hiked the quota for relending to support technological innovation and upgrades by CNY200 billion (USD29.8 billion), while raising the relending support ratio to 100 percent from 60 percent. The relending support ratio refers to the proportion of qualifying loans extended by banks for which they can obtain funding support from the PBOC.

Following the adjustment, the central bank’s relending quota for technological innovation and upgrades will rise to CNY1.4 trillion (USD208.8 billion) from CNY1.2 trillion, while the higher support ratio is expected to encourage banks to increase lending to small and medium-sized tech firms and provide greater support for investment in equipment upgrades in key areas, the PBOC said.

The final measure was an additional CNY500 billion (USD74.6 billion) in relending funds for agriculture and small businesses. Of this amount, CNY300 billion will be earmarked for private companies. The total quota for agricultural and small-business relending will therefore jump to CNY4.85 trillion from CNY4.35 trillion, while the quota for private firms will increase to CNY1.3 trillion from CNY1 trillion.

Through these four measures, the central bank will guide credit toward the “six networks,” technological innovation, agriculture, micro and small businesses as well as private economy, said Dong Ximiao, chief economist of Merchants Union Consumer Finance. These measures are aimed both at boosting effective investment and domestic demand in the short term and at building longer-term growth momentum by supporting technological innovation and industrial upgrading.

The latest policy package mainly works by lowering banks’ funding costs and the amount of capital tied up in lending, thereby increasing financial institutions’ willingness to extend credit, Dong said. It also leaves room for additional monetary measures to be introduced later.

Editors: Dou Shicong, Kim Taylor