MNI PBOC WATCH: Accommodative Stance Taken Despite LPR Hold

MNI (BEIJING) - The People’s Bank of China’s has fine-tuned its language on monetary policy to “accommodative” from its previous “prudent” stance, increasing the likelihood of further easing and the chance it will guide down the reference lending rate later this year. 

China's Loan Prime Rate was held at 3.35% for the one-year maturity and 3.85% for the over five-year tenor on Tuesday, in line with expectations and as the PBOC continued to keep the 7-day reverse repo rate unchanged this month. (See: MNI PBOC WATCH: Aug LPR To Hold Steady, Policy Easing Ahead)

The LPR rates unexpectedly fell last month by 10 basis points after the central bank lowered the 7-day reverse repo rate by the same level. (See MNI: China LPR To Hold In Aug, More Easing Eyed - Economists)

EASING SIGNAL

Governor Pan Gongsheng in an interview with Xinhua News Agency last week last week reiterated that policy would remain accommodative, reinforcing the Bank’s easing signal. (See MNI: PBOC Eyes Lower Rate For GDP Target, RRR Cut Optional)

The PBOC would also prepare additional measures and support proactive fiscal policy, he added, a comment some took as an indication a reserve requirement ratio (RRR) cut may be on the horizon amid the acceleration of CGB issuance in Q3. 

The comments followed poor July data which pointed to a further slowdown of the economy following Q2's disappointing 4.7% y/y GDP print, which resulted in H1 GDP growth of 5% y/y. The result will make it harder for the economy to meet the government's full-year 5% growth target.

BOND ISSUANCE

The recent State Council Executive Meeting chaired by Premier Li Qiang called for greater investment with government playing a leading role, making an increase to CGB issuance more likely. 

The National People's Congress Standing Committee meeting at the end of August could detail Beijing’s CGB plans. However, there could be considerable time between project approval, bond issuance, and tangible work should the government approve additional bonds.