The PBoC announced significant cuts in the RRR and policy rate today. Monetary easing would be less effective without proactive fiscal policy, more bond financing is likely. Rates in China will fall further with faster rate cuts, USD-CNY could test below 7.0 with risk appetite improving, Standard Chartered economists note.
Fiscal measures are likely to follow
“People’s Bank of China (PBoC) Governor Pan announced a 50 basis point cut in the reserve requirement ratio (RRR) and a 20 basis point cut in the policy rate, both doubling the normal size, along with a series of other measures to support the property market and the stock market. Pan also provided forward guidance on a possible RRR cut (25-50 basis points) in the fourth quarter.”
“We expect the PBoC to maintain the easing momentum in the coming quarters amid likely additional rate cuts by the Fed. We now expect a 25bp cut in the RRR in the fourth quarter, on top of our previous forecast of a 25bp cut in both the first and third quarters of 2025. In addition, we now see a 10bp cut in the policy rate in the second quarter of 2025, on top of our previous forecast of a 10bp cut in both the fourth quarter of 2024 and the first quarter of 2025.”
“Under the general public budget, a decline in fiscal revenues and relatively rigid spending responsibilities may lead to a financing gap of 0.5-1.0 trillion yuan this year, according to our estimate. We see a high probability that the government will increase bond issuance to cover the deficit. Under the government funds budget, we see an opposite risk, namely an underestimation of the budget deficit with a slow pace of deployment of government bond revenues.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
