VIEW: ING: PBoC Kept One Rate Unch. But There Is Another Decision Coming

ING note that “even though the PBoC told us that it would be "proactive" with its monetary policy, it kept the 1-Year Medium-Term Lending Facility (MLF) unchanged today at 2.85%. Some believe that this was because the central bank still needs time to judge the impact of last month's cuts to gauge the timing of further cuts.”

• “This is probably not the end of the rate-cutting story. The 1- and 5-Year Loan Prime Rates will be announced on Feb 20th. Though these interest rates are a function of the MLF, we have also seen that these rates can change when the MLF was flat. As such, we cannot conclude right now that the PBoC will stop easing in February. We need to wait until Feb 20th, which we believe could result in a 5bp cut from 3.70% and 4.60% in the 1- and 5-Year LPR, respectively.”
• “Further easing of monetary policy is important as there are more bond defaults coming, and we believe that the PBoC really needs to act proactively to alleviate extra downward pressure on GDP growth.”