Business

China set to keep medium-term rate steady on Friday, RRR cut more likely


SHANGHAI/BEIJING, April 14 (Reuters)China’s central bank is set to step up its monetary easing efforts, but a large majority of market participants in a Reuters poll on Thursday believe the central bank may choose not to cut borrowing costs on its banks. medium-term political loans this week.

Instead, markets are increasingly expecting an imminent reduction in the amount of cash banks must set aside as reserves, after the Council of State, or cabinet, on Wednesday called for the timely use of these monetary tools.

Activity in the world’s second-largest economy has slowed since the start of 2021 as traditional growth engines such as housing and consumption have faltered. More recently, widespread disruptions caused by COVID-19 outbreaks and severe lockdowns have tipped the balance towards a recession, according to some economists.

Yet 31 of 45 traders and analysts, or nearly 70% of all surveyed participants, expect no change in the interest rate on the one-year medium-term loan facility (MLF). CNMLF1YRRP=PBOC when the central bank prepares to roll over 150 billion yuan ($23.57 billion) of those loans on Friday.

Of the remaining 14 respondents, eight predicted a marginal cut of 5 basis points (bps), while the other six thought a cut of 10 bps would be more likely.

“The base case scenario from Citi economists is a 50 basis point cut in the broad-based reserve requirement ratio (RRR) that will be confirmed as early as April 15, freeing up more than 1.2 trillion yuan of liquidity,” he said. the US investment bank said in a note, adding that a cut could reduce the risk of an imminent MLF rate cut.

Some investors have also argued that more aggressive monetary easing in China, such as lowering both the RRR and policy rates, would further diverge its policy stance with other major economies, which have started to tighten, and would potentially trigger more capital outflows. The yield premium between China and the United States was erased this week.

“The situation would become more uncertain in the event of greater pressure on capital repatriation and deterioration in sentiment (of the yuan) later this year,” said Ken Cheung, chief Asian currency strategist at Mizuho Bank.

Lockdowns in Shanghai’s financial hub and dozens of other cities to curb the rapid spread of COVID-19 have rattled markets and raised concerns about broader disruptions to economic activity, leaving policymakers no choice but to provide more stimulus to ensure the economy is on track to meet this year’s growth target of around 5.5%.

However, some economists say any easing in credit may not be enough to quickly reverse a deep economic downtrend as businesses and consumers are in no mood to borrow money given the uncertain outlook.

($1 = 6.3660 Chinese yuan renminbi)

(Reporting by Steven Bian and Ryan Woo, Writing by Winni Zhou; Editing by Kim Coghill)

(([email protected]; +86 21 2083 0100; Reuters Messaging: [email protected]))

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