China’s central bank to cut rates soon, analysts predict

China’s central bank is expected to cut key rates soon, following a directive from a meeting led by the country’s second-in-command, Premier Li Keqiang. Li chaired an executive meeting of China’s highest administrative body, the State Council, on Tuesday.

In an announcement on Wednesday, the country’s leaders stressed the need for improving financial support for businesses hit by the new coronavirus, including lowering the reserve requirement ratio (RRR) — the amount that banks need to keep on hand.

“Without exception these calls by the Premier will be implemented by the (People’s Bank of China) almost immediately, so we expect the PBOC to announce a targeted RRR cut in the next few days, possibly before or over the coming weekend,” Ting Lu, chief China economist at Nomura, said in a note Thursday.

“We expect (the RRR cut will be) 50 (basis points) for the biggest six state-owned banks, and 100bp for other banks including joint-stock banks, city and rural commercial banks, and rural credit unions,“ Lu said.

He added that in the coming months, he expects 25 basis-point cuts each to the 1-year benchmark deposit rate and 1-year medium-lending facility (MLF) rate. The two rates are tools used by the Chinese central bank to manage liquidity in the banking system.

The central bank set the yuan’s daily midpoint weaker against the U.S. dollar on Thursday for a third day in a row, following seven straight days of strengthening by well over 1%, according to data from Wind Information. The yuan traded at 6.985 versus the greenback in Hong Kong as of Thursday afternoon.

China’s central bank to cut rates soon, analysts predict, CNBC, Mar 12