The People’s Bank of China (PBoC) unexpectedly cut its key 7-day reverse repurchase rate by 10 bps to 1.7% on Monday. This signals policymakers’ concerns about slowing growth, said Ho Woei Chen, an economist at UOB Group.
PBoC cuts rates amid slowing growth
“The PBoC unexpectedly cut its key 7-day reverse repurchase rate by 10 bps to 1.7% on Monday, prompting banks to reduce 1-year and 5-year LPRs by a similar amount to 3.35% and 3.85% respectively. The earlier-than-expected rate cut in July likely signaled policymakers’ concerns about slowing growth, while easing pressure on the CNY could also be a factor.”
“The central bank had left the rate on its 1-year medium-term lending facility (MLF) unchanged at 2.50% last week. Today’s move signals that the PBoC is shifting to the 7-day reverse repo rate as the main policy benchmark.”
“We still see scope for a further 15 bps rate cut for the remainder of this year, which would take the 1-year LPR down to 3.20% by the end of Q4 2024. Given the convergence of the 1-year and 5-year LPR, the scope for the 5-year LPR to be cut further may be more limited and we therefore expect it to remain at 3.85% for the remainder of 2024. In the near term, there is also the possibility of a 50 bps cut in the reserve requirement ratio (RRR).”
Source: Fx Street
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