Sell-Side Updates On The China Policy Stimulus Outlook

Sell-side views on the China policy stimulus outlook ahead of tomorrow's LPR outcomes:

• Goldman Sachs: "On June 13th, the PBOC surprised the market by announcing a 10bp OMO rate cut. We were expecting a RRR cut instead of a rate cut on FX considerations. The central bank's move suggests policymakers are not too concerned about RMB weakness. Given the persistent growth headwinds in the economy, we expect more monetary policy easing to come and project a 25bp RRR cut on Q3 and a 10bp policy rate cut in Q4. With the Fed hinting at additional rate hikes and the PBOC increasing monetary policy easing, we recently revised up our USD/CNY forecast to 7.2/7.1/6.9 (from 7.1/7.0/6.8 previously) on 3/6/12-month horizons."
• BofA: "Judging by the pattern of rate cuts since 2019, the recent reverse repo rate cut on 12 June and MLF (medium-term lending facility) rate cut on 15 June should very likely lead to a 10bp cut to 1-year LPR (Loan Prime Rate) on 20 June. While such a rate cut probably only helps marginally lower funding costs, it sent a strong signal of the policy shift towards an unmistakable easing. It confirms policy makers did see growth deceleration and muted inflation in recent data and decided to take action. Investors would no longer have to remain puzzled about "if they have seen it at all" or "is such deceleration is tolerable in their eyes". In our view, the rate cut is arguably just a baby step, but it raises hope for more countercyclical policy-easing measures in the coming months.
  
  We see more policy measures likely to be rolled out separately, including but not limited to a 25bp cumulative cut to the LPR by the year-end, and property-easing measures to cut payment ratios or mortgage rates, as well as some form of consumption support, e.g., for electric vehicles (EVs) or other large-ticket items. Such marginal easing will probably help prevent growth from slowing sharply, but will unlikely offer a strong boost to reverse the growth slippage in the near future. "
• TD: "A 10bps cut to both the LPR rates is likely after economic momentum continues to slow and the recovery stalls across sectors. However, the effectiveness of a cut is diminishing as mortgage rates have fallen sharply in China and are at their lowest in a decade. Further cuts may not give much of a boost to property especially as the issues afflicting real estate are deep-rooted."