PBoC announced outsized RRR and policy rate cuts today. Monetary easing would be less effective without proactive fiscal policy, more bond financing is likely.
China rates to fall further on faster rate cuts, USD-CNY may test below 7.0 on improved risk sentiment, Standard Chartered economists note. Fiscal measures likely to follow “Governor Pan of the People’s Bank of China announced a 50bps cut to the reserve requirement ratio and a 20bps cut to the policy rate, both doubling from the normal size, together with a range of other measures to support the housing market and stock market. Pan also provided forward guidance on a possible RRR cut in Q4.
We now expect a 25bps RRR cut in Q4, in addition to our previous forecast of a 25bps cut in both Q1 and Q3-2025. In addition, we now see a 10bps policy rate cut in Q2-2025, on top of our previous forecast of a 10bps cut in both Q4-2024 and Q1-2025.” “Under the general public budget, a decline in tax revenues and relatively rigid spending responsibilities may give rise to a financing gap of CNY 0.5-1.0tn this year, according to our estimate.
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