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PBoC: Further easing in the future is not ruled out – UOB

UOB Group’s Economist Ho Woei Chen, CFA, assessed the recent decision by the PBoC to leave the Loan Prime Rate (LPR) unchanged last Friday.

Key Quotes

“The People’s Bank of China (PBoC) kept its Loan Prime Rate (LPR) unchanged from the previous month against consensus expectation of a 5-10 bps rate cut. The 1Y LPR and 5Y & above LPR are maintained at 4.05% and 4.75% respectively. This further confirms official rhetoric that the Chinese economy is returning to normalcy from the COVID-19 pandemic as PBoC does not see the urgency to further lower its broad lending rates.”

“Given the recent aggressive monetary easing across major central banks, PBoC’s steady hands… has come as a relief because it suggests the COVID-19 pandemic may now be under control in the world’s second largest economy.”

“Year-to-date, the PBoC has cut its 1Y LPR and 5Y & above LPR by 10 bps and 5 bps respectively. This follows a cut to the 1Y Medium-term Lending Facility (MLF) rate by 10 bps to 3.15% on 17 February. The central bank has also lowered banks’ reserve requirement ratios (RRR) twice this year with the latest targeted 50-100 bps cut effective from 16 March.”

“Overall, we still see room for monetary easing via cuts to the LPR and RRR ahead to provide further boost to the economy but PBoC’s approach will continue to be prudent and any easing from here will be modest on the back of a domestic economic recovery.”

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