China: Poor results in fundamentals triggered a rate cut by the PBoC

Economist at UOB Group Ho Woei Chen, CFA, comments on the recent releases in the Chinese calendar and the rate cut by the PBoC.

Key Takeaways

“Broad economic weakness resurfaced in Jul as China’s data including the industrial production (IP), retail sales and fixed asset investment (FAI) missed expectations.”

“The national surveyed jobless rate has continued to ease but concerns for the job market have centred on providing employment for new graduates as the youth unemployment rate rose further to a fresh record high of 19.9% in Jul.”

“The People’s Bank of China (PBoC) unexpectedly cut its 1Y medium-term lending facility (MLF) rate by 10 bps to 2.75% … The 7-day reverse repo rate was also cut to 2.00% from 2.10%. However, the central bank withdrew liquidity as expected, by rolling over CNY400 bn out of CNY600 bn of MLF that are maturing this week.”

“This is the first cut since Jan when the 1Y MLF was also reduced by 10 bps, leading to a corresponding 10 bps drop in the 1Y loan prime rate (LPR) subsequently. This time, we are also expecting the 1Y LPR to be fixed lower by 10 bps to 3.60% on 22 Aug while the 5Y LPR may also move lower in addition to the 15 bps reduction in May (current rate at 4.45%). We are retaining our end-3Q22 forecast for the 1Y LPR at 3.55% and then expect the rate to stay on hold through to 1Q23. Further rate reductions in China will be limited as domestic inflation rises while there are also increasing concerns over excessive liquidity in the banking system as credit demand has stayed weak due to the economic uncertainties.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.