Nomura Expecting A 10bps MLF Cut This Week

Nomura is expecting a 10bps MLF cut this Thursday, highlighting the shift in PBoC rhetoric last week.

• "On 7 June, PBoC Governor Yi Gang hosted a meeting in Shanghai with a group of companies and financial institutions, and a meeting memo was released two days later. According to the memo, Governor Yi stressed that the PBoC will enhance “counter-cyclical” policy adjustments to forcefully shore up the real economy. He also said monetary tools will be used to steadily lower funding costs of the real economy. We believe these comments suggest that Beijing has now become seriously concerned over the potential for a double dip, and the PBoC may respond by stepping up stimulus measures in the near term. As the PBoC had cut RRR only around two months ago, we believe it will very likely deliver a benchmark lending rate cut this coming Thursday, especially given the recent deposit rate cut last week and a likely Fed pause later this week. We have been calling for 10bp cuts to the MLF rate and LPR in mid-June since mid-May, and we believe Governor Yi’s latest comments lend further support to our call."