PBoC: Extra rate cuts remain on the cards – UOB

FXStreet reports that Ho Woei Chen, Economist, CFA at UOB Group, assessed the recent decision by the PBoC to lower its reference 1-year Loan Prime Rate. 

“… the People’s Bank of China (PBoC) lowered its benchmark 1Y Loan Prime Rate (LPR) by 20 bps to 3.85% and the 5Y & above LPR by 10 bps to 4.65% in line with consensus expectation. … Overall, it is the policy intention of the PBoC to lower the real interest rate in the economy by bringing down the funding costs.”

“Despite the larger move in April, the pace of monetary easing in China has remained very gradual compared to more aggressive cuts in the other economies. This measured and targeted approach is likely to be maintained even as China increases its counter-cyclical adjustments to support domestic growth recovery.”

“The politburo meeting chaired by Chinese President Xi Jinping last Friday has promised stronger economic policies to support the economy after it registered the first GDP contraction since 1976.”

“With the severe COVID-19 outbreak in the other major economies delaying the potential economic rebound in China, we have downgraded our 2020 growth forecast for China to 1.8% from previous 4.1%. In line with this weaker growth trajectory, we now foresee a slightly larger LPR adjustment this year. We expect the 1Y LPR to be lowered to 3.65% by end-2Q20 (10 bps cut each in May and June) and then to 3.55% by end-3Q20 and end-4Q20.”