UOB Group economist Ho Woei Chen, CFA, and senior currency strategist Peter Chia, analyze the latest decision of the PBoC.
main conclusions
PBoC cuts 7-day reverse repo rate by 10 basis points to 1.9% from 2.0% before the MLF one-year benchmark rate announcement this Thursday (June 15). The last time the 7-day repos and 1-year MLF rates were cut was in August 2022.
With today’s decision, the 1-year MLF and 1-year Loan Prime Rate rates are expected to see a corresponding reduction to 2.65% on June 15 and 3.55% on June 20, respectively . The 5-year LPR could be cut by more than 10 basis points to increase support for the real estate market.
For the rest of the year, we do not anticipate further interest rate cuts after the 10 basis point cut in June, unless economic conditions continue to deteriorate. However, we maintain our forecast of a 25 basis point reduction in the banks’ required reserve ratio (RRR) in the second half of 2013 to release more long-term funds into the banking system. This could be used to partially replace the CNY 2.9 trillion 1-year MLF due in the second half of 2013.
Markets also anticipate tightening of property support measures, as indicated by officials earlier this month.
We maintain our growth forecast for China at 5.6% in 2023with Q2 2023 at 7.8% YoY (Q1 2023: 4.5%) vs. the low base during the two-month Covid-19 shutdown in Shanghai in Q2 2022.
In our view, the CNY rebound is likely to begin in the fourth quarter of 2023, when China’s economic recovery regains momentum. Our current forecasts for USD/CNY stand at 7.20 in Q3 2023, 7.05 in Q4 2023, 6.90 in Q1 2024 and 6.80 in Q2 2024.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
