Economist at UOB Group Ho Woei Chen, CFA, reviews the latest PBoC meeting.
Key Takeaways
“The People’s Bank of China (PBoC) announced on Fri (15 Apr) that it will lower banks’ reserve requirement ratio (RRR) by 25 bps, effective from 25 Apr.”
“The quantum of RRR cut is much smaller than previous rounds which would typically be 50 to 100 bps. Furthermore, the PBoC left its 1-year medium-term lending facility (MLF) rate unchanged at 2.85% on Fri (15 Apr), against market’s and our expectation of a 10 bps cut to 2.75%.”
“First, this could imply that the PBoC is running into constraint to use the RRR as a monetary policy tool after successive reductions over the years.”
“Second, the overall impression is that the central bank has little appetite for aggressive monetary policy easing. While the PBoC wanted to boost market confidence, it is also aware that the impact of its policy easing may be limited by weak credit demand. As such, policymakers may find it more useful to use measures to address demand side weakness by easing COVID-19 curbs and boost consumption demand.”
“Third, as the RRR is reduced by a smaller than expected quantum and will only take effect from 25 Apr, the immediate impact on lowering banks’ funding cost will be limited. Thus, the 1Y LPR and 5Y LPR are likely to be unchanged at 3.70% and 4.60% respectively at the fixing this month on 20 Apr.”
“We see more pressure for the PBoC to ease its monetary policy further in the upcoming months, likely by direct cuts to the 1Y MLF rate to bring down the LPR and via its relending tool. We maintain our forecast for the benchmark 1Y LPR to fall to 3.55% but see a longer time frame for the easing by the end of 3Q22 instead of 2Q22.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
USD/JPY holds positive ground around 151.50 following Japanese CPI data
The USD/JPY pair holds positive ground for the second consecutive day near 151.45 on Friday during the early Asian trading hours. The cautious approach from the Bank of Japan to keep monetary conditions accommodative exerts some selling pressure on the Japanese Yen.
AUD/USD depreciates on risk aversion amid a stronger US Dollar
AUD/USD extends its losses for the second successive session on Friday. However, market activity is expected to be subdued due to light trading on Good Friday. Meanwhile, the US Dollar strengthens as recent data indicates annualized economic expansion in the United States, driven by consumer spending.
Gold price finishes Thursday’s session set to reach new all-time highs
Gold price rallied during the North American session on Thursday and hit a new all-time high of $2,225 in the mid-North American session. Precious metal prices are trending higher even though US Treasury yields are advancing, underpinning the Greenback.
Top 3 Price Prediction BTC, ETH, XRP: Retail watches from the sidelines with a bias for shorts
Bitcoin is showing strength as markets head into the Easter holidays. As it rises, altcoins are following suit, with Ethereum and Ripple posting almost similar gains. Meanwhile, there remains an unfilled CME Gap, with a lot of liquidity also resting above and below BTC price.
Bears have been standing before a steamroller so far this year
Despite a pushback on rate cuts from Christopher Waller, and what was supposed to be cautious trading sentiment ahead of critical US inflation data released later on Friday, the S&P 500 rose on Thursday, marking its best first-quarter performance in five years.