PBOC to cut MLF rate by another 10 bps before end-October – Standard Chartered

Economists at Standard Chartered Global Research note that China's growth slowed across the board in July, undershooting market expectations by a wide margin.

We now expect another 10bps cut to MLF

"Industrial production grew only 3.8% y/y in July, compared with expectations of 4.3% y/y. High frequency data indicates industrial activity is likely to remain weak in August due to deteriorating consumer sentiment and new COVID outbreaks. The drag of COVID prevention measures on services and retail sectors intensified, with growth slowing to 0.6% y/y and 2.7% y/y, respectively, in July, from 1.3% y/y and 3.1% in June. Fixed asset investment growth slowed to 3.6% from 5.8% y/y in June, led by moderating manufacturing investment growth and larger declines in real estate investment. Infrastructure investment growth picked up to 9.1% in July from 8.2% y/y in June, thanks to strong government support."

"In light of weaker-than-expected growth in July, we downgrade our forecasts for China’s Q3, Q4 and 2022 annual GDP growth to 3.2% y/y, 4.8% y/y and 3.3%, respectively, from 5.3%, 5.9% and 4.1% previously. We expect the path to China’s economic recovery to be a slog as local governments are likely be cautious about relaxing business restrictions ahead of the 20th Party Congress due to fears of COVID resurgence."

"Given the surprise interest rate cut by the People’s Bank of China (PBoC) today, we now expect another 10bps cut to the medium-term lending facility (MLF) rate before end-October, to support the economic recovery amid continued headwinds from a weakening housing market, deteriorating consumer sentiment and new COVID outbreaks "