The PBOC’s dovish monetary policy bias persists and was clearly reinforced at the National People’s Congress. Additional liquidity injections and deposit rate cuts should follow shortly. Improving cyclical data in combination with cautious PBOC liquidity management and a surge in local government bond issuance have fed market expectations that the central bank’s easing bias is faltering. But the uneven nature of the current recovery and the persistence of deflationary pressures will keep the PBOC delivering easing measures, and should keep yields and swap rates moving lower through the end of the year.
