The PBOC has abruptly shifted policy messaging in April, and disappointed markets by failing to deliver a cut to the MLF rate despite transparently weak credit demand throughout China’s economy. For the rest of the year, fiscal policy support via a budget revision may be necessary, but interest rates still need to move lower, and the PBOC will be dragged into cuts sooner or later. More troubling is the mixed messaging from Chinese policymakers, which is damaging confidence in a meaningful policy response to counter the lockdown and property-led economic slowdown.
