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Proactive PBOC, Steeper Yield Curve

The Chinese New Year holiday always creates complications for PBOC liquidity management, but the central bank should find this January’s task easier than usual. Lockdown measures limiting travel across the country should reduce pre-holiday cash demand, just as they did last year. Market expectations for an interest rate cut in January are rising, and MLF operations this month create opportunities for the PBOC to cut funding rates and boost credit demand for the full year. A sustained rebound in credit growth is far from assured given weak private sector credit demand. The most probable result in the first half of the year will be a downward-shifting and steepening yield curve.

Posted January 6, 2022
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