MNI PBOC WATCH: Rates On Hold, More Easing Eyed In 2025

MNI (BEIJING ) - The People’s Bank of China will likely hold its policy interest rates steady for the remainder of 2024 to observe the economic impact of incremental easing since September, but will cut the reserve requirement ratio again sometime before the end of the year.

China's Loan Prime Rate remained unchanged on Wednesday at 3.1% for the one-year maturity and 3.6% for the over five-year tenor. Both rates fell 25 basis points last month, the largest reduction since authorities reformed the LPR pricing system in 2019. (See MNI PBOC WATCH: LPR To Remain Stable, Yuan Watched Closely)

The decision was largely expected as indicators pointed to marginal economic improvement in October, particularly in the housing market and consumption, driven by eased real-estate purchase regulation, the consumer goods trade-in campaign and September's significantinterest rates and RRR cuts, which lowered funding costs across the economy.

While the PBOC will hold interest rates steady over the next two months, accelerated bond issuance by local governments aiming to swap out hidden debt will drive the central bank to enhance liquidity support via expansion of its outright reverse repo tool and a 25-50bp RRR cut later this year. (See MNI: PBOC To Expand Tools, Cut RRR As Fresh Bonds Hit Market)

BANK EYES 2025

PBOC Governor Pan Gongsheng reiterated the Bank's accommodative monetary-policy stance and pledged to strengthen efforts to boost the economy in the central bank's annual report to the National People’s Congress Standing Committee earlier this month.The comments were taken as a positive signal for further easing next year to stabilise the real-estate market, boost the economy, and respond to potential changes in the external trade environment. 

The PBOC will also need to cut policy interest rates next year to counter any deflationary pressure. (See MNI INTERVIEW: PBOC To Cut Rates Further, Target 2% CPI) October's consumer price index increased only 0.3% y/y, 10bp below the estimate and September's result, National Bureau of Statistics data showed last week. The producer price index also extended its over two year decline last month, falling 2.9% y/y.