Breaking News: PBoC Surprises Market with 20bps MLF Rate Cut – What Does This Mean for Your Investments?
In a surprising move, the People’s Bank of China (PBoC) has cut the medium-term lending facility (MLF) rate by 20 basis points. This move is likely intended to close the gap with the market rate and stimulate economic growth in the country. While the role of the MLF rate is fading, it will remain an important liquidity injection tool in the near term.
According to Standard Chartered economists Shuang Ding and Hunter Chan, we can expect one more 10bps cut to the 7-day reverse repo rate in Q1-2025, on top of a 10bps cut in Q4. This would bring the rate to 1.9%. The recent Third Plenum emphasized the importance of using macro policies to boost domestic demand and achieve the annual growth target of 5%.
The PBoC’s unexpected rate cut comes after a disappointing Q2, where growth slowed sharply to 0.7% q/q from 1.5% in Q1. To support growth, the central bank also conducted MLF operations, injecting CNY 200 billion to keep liquidity ample before month-end.
Looking ahead, we can expect more rate cuts in the future. The Fed is expected to start its rate cutting cycle in Q3, which could reduce pressure on the Chinese Yuan and allow for further monetary easing. The upcoming Politburo is also likely to push for faster fiscal spending in H2 to stimulate the economy.
In conclusion, the PBoC’s rate cut is a positive sign for investors as it shows the central bank’s commitment to supporting economic growth. As an investor, it’s important to keep an eye on these developments and adjust your investment strategy accordingly. This move could have a significant impact on your finances, so stay informed and be prepared for any potential changes in the market.