PBOC’s OMO rate cut indicates weak financing demand, MLF and LPR cut highly likely in Jun – Industrial Securities
MACRO VIEWS & ANALYSIS
PBOC’s OMO rate cut indicates weak financing demand, MLF and LPR cut highly likely in Jun – Industrial Securities
MACRO VIEWS & ANALYSIS

PBOC’s OMO rate cut indicates weak financing demand, MLF and LPR cut highly likely in Jun – Industrial Securities

 

>>REAL-TIME UPDATES IN THE WIRE. CLICK HERE<<<

 

 

The People’s Bank of China cutting the interest rate for its open market operation (OMO) by 10 basis points on Tuesday indicates that the real economy’s financing demand may be weaker than the authority’s expectations, Industrial Securities said in a note.

Based on the experience of the past two rate cuts, the PBOC tends to cut the rate on Medium-Term Lending Facility (MLF) when renewing the loans and it also tends to lower the rates on MLF and OMO rates simultaneously, the note said. 

The central bank’s cut in OMO rate just before MLF loans are about to be renewed (on Thursday) indicates that the current credit demand from the real economy is significantly weaker than the authority’s expectations and a rate cut is urgently needed, it said. 

There is a big chance for the rate on MLF and the benchmark lending rate LPR to be cut after the OMO rate cut and the cut in LPR will likely be more than 10bp, it said.