PBOC’s OMO rate cut may signal new round of rate cuts, more pro-growth policies to come – CICC
MACRO VIEWS & ANALYSIS
PBOC’s OMO rate cut may signal new round of rate cuts, more pro-growth policies to come – CICC
MACRO VIEWS & ANALYSIS

PBOC’s OMO rate cut may signal new round of rate cuts, more pro-growth policies to come – CICC

 

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The PBOC’s move to cut the rate on 7-day reverse repo is in line with expectations, and may signal a new round of rate cuts, said CICC in a research note. 

Based on the historical pattern, the reverse repo rate cut is usually synchronized with MLF and LPR cuts, and China’s one-year MLF rate and 5-year LPR are expected to be cut by 10 bps, with room for cuts of about 20 bps in the next one to two years, the bank said.

Although financing costs may not be the key issue in the economy at the moment and the marginal stimulus of rate cuts on credit demand is limited, interest rate remains an irreplaceable tool for sending signals of monetary policy, it said.

China’s policies may have shifted to fully support the economy and more pro-growth policies may be introduced later, including more credit injection, policies for renewal of real estate loans, greater efforts to secure property deliveries, and resolution of local government implicit debts, it said.