J.P. Morgan Can't Rule Out Feb MLF Cut Post Yesterday's CPI Miss

The US Bank expects 2 MLF cuts this year, Q1 and Q3. A March cut is the baseline, but a Feb cut can't be ruled out following yesterday's CPI data.

J.P Morgan: "On the policy front, in response to recent financial market turbulence, the State Council rolled out a series of measures lately to restore market confidence. Regarding macro policy, the PBOC announced an unexpected 50bp RRR cut (effective February 5), earlier and larger than our forecast. The RRR cut injected 1 trillion yuan liquidity into the banking system, following significant expansion of structural monetary policy operation in recent months.

Looking ahead, we expect two policy rate cuts of 10bp, in 1Q and 3Q respectively, along with another 25bp RRR cut in 4Q. Timing-wise, our baseline assumes the next rate cut to come in March, although a February cut cannot be ruled out, especially considering the softer-than-expected January CPI reading. PBOC Governor Pan recently commented that, amid a lack of effective demand growth, excessive capacity in certain industries, softness in private sector confidence, and general weakness in pricing trend, one of the key objectives of monetary policy this year is to maintain general price stability and to support moderate price recovery. Meanwhile, we believe structural monetary policy instruments will play an essential role in the PBOC’s policy operation this year. Overall, we maintain our forecast for stable TSF growth at 9.5% for 2024.