Minutes after the briefing was announced, the People’s Bank of China (PBOC) lowered the 14-day reverse repurchase rate, continuing a series of reductions that began in July. These coordinated moves have intensified speculation that the PBOC is gearing up to implement further rate cuts in response to disappointing economic data and the recent decision by the U.S. Federal Reserve to begin cutting rates.
China’s economic outlook has been under scrutiny, with concerns growing that the country may fall short of its annual growth target of around 5% without additional support. The yield on China’s 10-year government bonds declined by one basis point to a new low of 2.03%, indicating that traders are anticipating more monetary stimulus. Additionally, the PBOC adjusted its daily reference rate for the yuan to 7.0531 per dollar, signaling a potential approach to the critical 7 level.
According to Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, the recent rate reduction aligns with a previous 10-basis-point cut in the seven-day rate, and further easing measures are expected soon. “I anticipate the PBOC will cut the seven-day repo rate and the reserve requirement ratio in the coming months,” Zhang stated. The upcoming press conference will likely clarify the regulators’ policy stance.
On Wednesday, the PBOC may also consider lowering the cost of its one-year policy loans. In July, it cut the seven-day reverse repo rate just before significantly reducing the medium-term lending facility.
The decision to decrease the 14-day rate from 1.95% to 1.85% comes ahead of the National Day Holiday, which lasts for seven days starting October 1. Historically, the PBOC provides 14-day loans before long breaks; the last such operation occurred in February before the Lunar New Year holiday. The central bank also injected 74.5 billion yuan (approximately $10.6 billion) into the banking system through this tool.
ANZ’s Chief Greater China Economist, Raymond Yeung, emphasized that a 10-basis-point cut alone is insufficient to counteract the declining economic momentum. “A larger package is necessary, and we can expect additional policy measures, including cuts to the reserve requirement ratio, medium-term lending facility rates, and mortgage rates,” he noted.
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