PBoC seen reducing rates further this year – UOB

Head of Research at UOB Group Suan Teck Kin, CFA, reviewed the PBoC’s monetary conditions and potential moves for the current year.

Key Quotes

“China’s Loan Prime Rate (LPR) for both the 1Y and 5Y & above tenures were unchanged at the monthly fixing [on Monday], at 4.15% and 4.80% respectively. This is the second straight month that the rates were left untouched despite the 50 bps cut to banks’ reserve requirement ratio (RRR) earlier this month”.

“Overall, we continue to see a downward trajectory for the LPR towards the Medium-term Lending Facility (MLF) which is currently at 3.25%, as intended by the central bank when the reform was engineered back in August”.

“Coming on the back of the Phase One trade deal with the US, China’s December economic data and 4Q19 GDP pointed to a stabilizing outlook in 2020. We forecast 2020 GDP growth at 5.9% compared to 6.1% in 2019.”

“After the 150 bps cut in banks’ RRR in 2019 and another 50 bps cut in January 2020, the PBoC said last week that there is limited room for further reductions. We still see room for a 50 bps RRR cut in 2Q20, after the annual National People’s Congress (NPC) that opens on 5 March. The magnitude and timing of the move will depend on incoming economic data.”