PBoC increased the monetary policy support – UOB

FXStreet reports that Ho Woei Chen, CFA, economist at UOB Group, reviewed the latest round of monetary policy measures announced by the PBoC.

“The People’s Bank of China (PBoC) released its 1Q20 monetary policy implementation report on Sunday (10 May) which highlighted the support measures introduced during the quarter and the direction of the monetary policy going forward.”

“In 1Q20, the Chinese economy contracted by 6.8% y/y, its deepest fall since 1976 and inflation remained elevated at 4.9% y/y. However, the overall labour market and balance of payments were basically stable.”

“The report pledged to increase the flexibility of the monetary policy and the use of more tools to effectively curb the impact of the COVID-19 pandemic on the economy.”

“Year-to-date, 1Y and 5Y & above LPR have moved down by a total of 30 bps and 15 bps, respectively. 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. We see room for interest rates and the RRR to be lowered further to support the growth recovery in the year ahead.”

“As such, we maintain our forecast for 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. We also see room for another one to two rounds of reserve requirement ratio (RRR) cut in the next 3-6 months to support small and medium enterprises (SMEs) in particular.”