PBoC promises more loosening, when the time is right
China’s central bank (PBoC) has again signaled that monetary loosening is on the way – eventually.
In a readout of a Thursday meeting of its Party committee, the PBoC reiterated that it will make interest rate and reserve requirement ratio (RRR) cuts:
- “According to the domestic and international economic and financial situation and the operation of the financial market”
The PBoC highlighted the difficulty in setting monetary policy in the current environment, saying its goal is to:
- “Balance the relationship between the short term and the long term, between stabilizing growth and preventing risks, between internal equilibrium and external equilibrium, between supporting the real economy and maintaining the health of the banking system”
ICYMI: In early December, the Central Economic Work Conference said interest rates and banks’ reserve requirement ratios (RRRs) would be reduced “in a timely manner.”
- That seemed to suggest further loosening was on its way quickly.
- However, the PBoC hasn’t cut rates since September.
Get smart: Cutting interest rates would provide much-needed relief to Chinese firms struggling with deflation – but something has clearly made the PBoC reluctant to do so.
Get smarter: The PBoC has previously expressed concern that rate cuts would worsen overcapacity by relieving pressure on industrial firms.
- It also previously said it is worried rate cuts will drive deposits out of banks, pushing up bank funding costs and eroding their profits.
Our take: We had previously expected rate cuts to accelerate this year.
- It now looks as though the PBoC will cut conservatively.