This is No Way to Cut Rates

The PBOC reportedly guided most commercial banks to reduce deposit rates by 10 bps on Friday, and also formally announced a smaller-than-expected 25 bps cut to banks’ required reserve ratios (RRR), while leaving the medium-term lending facility (MLF) interest rate unchanged this morning.

The combination of monetary policy moves is disappointing relative to expectations and misses an opportunity to send a stronger easing signal, reduce real corporate borrowing costs, and boost credit demand. Further monetary easing is still highly necessary, but less probable after today’s adjustments. This creates further downside risks for credit growth and cyclical momentum this year, within an already flagging economy.

Posted April 16, 2022
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