Standard Chartered Look For Another 10bp PBoC Rate Cut In Coming Months

In light of yesterday’s PBoC easing Standard Chartered note that “the policy rate cut is intended to boost loan demand and keep money and credit growth moderately above nominal GDP growth, in our view. The loan-prime rate (LPR), which is closely related to the MLF rate, will most likely be cut by 10bps this month on 22 August - the 1-Year LPR to 3.6% and the 5-Year LPR to 4.35%. In its Q2 monetary policy implementation report, the PBoC had indicated that the LPR would play a guiding role in lowering corporates’ financing cost. Given sluggish home sales amid the mortgage boycott and weak mortgage demand, the rate cut should also help improve property market sentiment. However, we think a more comprehensive approach is needed to stabilise property market expectations (especially through addressing the financing problems facing developers) and COVID control measures need to be improved further so that corporate and property loan demand can recover meaningfully.”

• “We had previously argued that the window for policy rate cuts was closed due to rising CPI inflation, the expected economic rebound in H2 and aggressive rate hikes by major central banks. The PBoC has cautioned on the risk of structural inflationary pressure in China and expects CPI inflation to exceed 3% Y/Y for part of H2, a view we agree with. However, growth momentum stalled again in July, and early indicators for August do not bode well amid rising COVID outbreaks. Externally, the possible peaking of CPI inflation in the U.S. may lead to a pause in Fed rate hikes by year-end. We therefore expect another policy rate cut of 10bps from the PBoC by end-October. However, we do not expect RRR cuts for the rest of the year.”