Economists believe that China’s major interest rate cuts will open the door to further monetary easing for the People’s Bank of China (Central Bank) as the Federal Reserve begins to raise interest rates in March.
On the 17th, the People’s Bank provided 700 billion yuan (about 12.6 trillion yen) of annual funds to the financial system through the medium-term lending system (MLF). Interest rates have been reduced from 2.95% to 2.85%. In addition, 100 billion yuan will be supplied through the 7-day reverse repo. Interest rates have dropped from the previous 2.2% to 2.1%.
People’s Bank of China reduced 1-year MLF interest rate to 2.85% -since April 2008
Following the reduction in MLF interest rates, the People’s Bank is expected to reduce the loan prime rate (LPR) announced on the 20th. LPR is an index of new lending interest rate. The one-year LPR has already been reduced by 5 basis points (bp, 1bp = 0.01%) in December last year, and attention is focused on whether the deferred 5-year LPR will be reduced last month.
China’s one-year loan prime rate cut-real estate hits economic support
Rate Cut
China’s slowing economy prompts PBOC to act
Source: People’s Bank of China
Economists such as Mr. Wei Ryu of Goldman Sachs Group expect to reduce the 5-year LPR by 5bp in the report on the 17th. He commented that a five-year cut in real estate loan reference rates “sends a signal for widespread real estate policy easing.”
Goldman also envisions that the People’s Bank will cut the reserve requirement ratio by 50bp at some point to support the economy.
China’s trade surplus remains at a high level, and it is highly likely that strong capital inflows from foreign countries will continue due to the purchase of yuan-denominated assets by foreigners, and the yuan’s depreciation and capital outflow pressure will continue to be small. This situation also “suggests room for further easing by the People’s Bank despite this year’s tightening of US monetary policy.”
Original title:PBOC Seen Cutting Rates Further, Lowering RRR to Aid Economy (1) （抜粋）
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