FXStreet (Edinburgh) – Analyst at Deutsche Bank Jim Reid reviewed the recent moves by the PBoC.
Key Quotes
“In terms of the cuts, the PBoC cut the benchmark interest rates by 25bps and the RRR by 50bps, while at the same time also removed the ceiling on interest rates for term deposits with maturities greater than one year”.
“DB’s Chief China Economist, Zhiwei Zhang saw the cuts as broadly in line with his expectations, but of more surprise to Zhiwei was that the cuts took place yesterday evening rather than over the past two weekends”.
“In his mind this suggests that the cuts were likely triggered by the financial market turmoil in China as well as overseas, rather than the weak economic data or capital outflows”.
“Zhiwei continues to forecast for another RRR cut this year (and biased towards Q4) but no further cut to the benchmark interest rate”.
“This view is based on Zhiwei’s growth outlook which he highlights may now stabilize, although acknowledges that the risks are tilted to the downside”.
“Interestingly the PBoC press release yesterday did mention that monetary policy will become more flexible in the future and so suggestive that policy will become more data dependent”.
(Market News Provided by FXstreet)