China’s dovish switch is dividing the market over concerns of economic downturn and how far the central bank is willing to loosen its policy.
- UBS Asset Management and Citic Securities expect interest rate cuts in the coming months as growth declines. Nomura Holdings Inc does not expect aggressive easing.
- Chinese policymakers started loosening liquidity after months of concerns about excessive leverage. The upcoming gross domestic product data and retail sales might reveal the loosening of the liquidity.
- People’s Bank of China is willing to implement additional tools as the economic recovery from the pandemic experiences risks of stagnation.
- The PBOC announced the trimming of the reserve requirement ratio by 0.5 percentage point for many banks to expand long-term liquidity. The sudden flip to an easing stance spooked investors, increasing concerns that China’s recovery from the pandemic was faltering.
Chinese benchmark interest rate is becoming less important to PBOC over time. Recently, the Central Bank has adopted a flexible policy rate in adjusting the borrowing costs in the economy.
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