PBoC could refrain from easing further – Danske Bank

FXStreet (Edinburgh) – Analyst at Danske Bank Flemming Nielsen does not see the PBoC easing further in the upcoming months.

Key Quotes

“People’s Bank of China (PBoC) on Saturday cut both its one-year benchmark lending rate and its one-year benchmark deposit rate by 25bp to 4.85% and 2.0%, respectively”.

“While another interest rate cut by PBoC was widely expected, it was nonetheless a relatively aggressive easing move. First, it is unusual that PBoC cut both its leading interest rates and the RRR on the same day. Second, PBoC has also started to inject liquidity more aggressively into the money market again”.

“We have not changed our macro-economic view on China in the wake of the recent sharp decline in the Chinese stock market. In our view, the impact on growth from the plunge in stock prices will be modest, as it was in connection with the Chinese stock market collapse in 2007/2008”.

“What happens in the housing market will be much more important and so far there are tentative signs that the housing market has started to recover in the wake of PBoC’s easing”.

“The manufacturing PMIs have also started to improve. Hence, data still support a moderate recovery in growth in H2”.

“For that reason we do not expect to see aggressive easing from PBoC in the coming months. The RRR will probably be cut by at least another 50bp but we do not expect the leading interest rates to be cut further. That said, the impact of Greece on the global economy is a major uncertainty in the short run”.

“We also continue to expect USD/CNY to trade broadly unchanged in the coming months as China does not want to rock the boat ahead of the IMF’s decision this autumn on possible inclusion of the CNY in the SDR”.

Analyst at Danske Bank Flemming Nielsen does not see the PBoC easing further in the upcoming months…

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