PBoC Matters Set To Dominate On Friday After Easing Guidance

Friday’s focus will fall squarely on all things PBoC.

• The guidance from this week’s State Council meeting, coupled with several recent warnings re: economic growth headwinds from Chinese Premier Li amid the well-documented localised COVID lockdowns evident across many Chinese cities, has market participants focused on the potential for monetary easing ahead of the weekend.
• Comments from PBoC monetary policy department director Sun Guofeng, made Thursday, also pointed to downward pressure on growth, which he noted will lead to the deployment of monetary policy tools “at the proper time”, including RRR cuts.
• Wednesday’s aforementioned State Council meeting resulted in similar guidance/wording re: a RRR cut.
• When it comes to potential timing re: such a move, we would point to after the close of Chinese markets today as the most likely time for action (we can’t be any more specific than that), while Citi have noted that a 50bp cut to the headline RRR would release over CNY1.2tn of liquidity.
• Elsewhere, the latest round of PBoC MLF operations (with the announcement on those matters due at 02:20 London) will be watched. 12 of the 22 surveyed by BBG look for a 10bp cut in the rate applied to use the facility, while 4 look for a 5bp cut and the remaining 6 look for no move. A reminder that the 1-Year MLF rate currently stands at 2.85%, with CNY150bn of 1-Year MLF set to expire today. The BBG survey median looks for CNY250bn of 1-Year MLF usage to be provided today (range of CNY150-300bn), which would result in a net injection of CNY100bn. Any move lower in the rate applied to MLF operations should, at least partially, filter through into next week’s LPR fixings.