VIEW: ING Look For Fiscal Levers To Provide Most Of The Support

ING’s view is that “the PBoC thinks there is enough liquidity in the market to overcome difficulties during the current COVID lockdowns. It could just be that banks are reluctant to lend. In this case, further extensive PBoC pressure will be required for banks to tap the standing lending facility (SLF) if banks do not get enough liquidity through open market operations. The standing lending facility is expensive, for example, the 7-day rate is 3.10%, compared to 1-Year Medium Lending Facility (MLF) at 2.85%. We believe that the next step for the PBoC is still cutting the required reserve ratio (RRR) and 1-Year MLF. These two policy tools may take turns each month, and each move will probably be a small step. As monetary policy is unlikely to be the main relief measure, we expect that there will be more fiscal support for the economy. This includes faster issuance of local government special bonds to fund infrastructure investments, which should provide some job opportunities for the construction industry as well as GDP growth support.”