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More easing measures are on the cards in China – RBS

FXStreet (Barcelona) - Analysts at RBS think that the PBoC’s rate cut announced late Friday opens room for further policy easing such as broad-based RRR cuts to guide funding cost lower in the real economy.

Key Quotes

“The PBoC cut benchmark interest rates for the first time since July 2012 to step up its support to the nation's economic growth with effect from 22 November. The 1Y lending rate was reduced by 40 bp to 5.60%, while the 1Y deposit rate was lowered by 25 bp to 2.75%.”

“We think the PBoC’s rate cut announced late Friday opens room for further policy easing such as broad-based RRR cuts to guide funding cost lower in the real economy. It could boost market confidence in RMB-dominated assets including the stocks, the bonds and the currency itself. The CNY ND IRS curve could trade with a bull-steepening bias in the coming months while the Chinese yuan is likely to appreciate modestly in the rest of this year.”

“In general, the PBoC's policy rate cut together with the ECB's purchases of assetbacked securities (ABS) could boost risk-taking sentiment across the global markets.”

“We recognize that the major central banks including the PBoC are trying their best to stabilize and bolster the global economy, as a poem from the movie Interstellar says "do not go gentle into that good night”.”

“Following the policy rate cut, the PBoC could cut 14-day repos rate from 3.40% this week in the open market operations. The nation’s benign inflation outlook will allow the PBoC to expand the monetary base further through different tools such as SLF, Relending,MLF and PSL."

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