China stimulus hopes rise as PBOC cuts rate, plans briefing

(Bloomberg) — China announced plans for a rare briefing on the economy from three top financial regulators as it cut one of its short-term policy rates, fueling speculation authorities are preparing to step up efforts to revive growth.

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Authorities announced Monday that central bank governor Pan Gongsheng will hold a press conference on financial support for economic development tomorrow, along with two other officials. Minutes later, the People’s Bank of China cut the 14-day reverse repo rate as part of cuts initiated in July.

Taken together, the moves support expectations that the PBOC will cut rates after the US Federal Reserve finally began tapering last week. China’s central bank has recently signaled that it is preparing additional policies. A flurry of disappointing data in August raised concerns that China could miss its annual growth target of around 5 percent without more support.

The yield on China’s 10-year government bond fell a basis point to a new low of 2.03 percent, a sign that traders are bidding for more monetary stimulus. In the foreign exchange market, the PBOC raised its daily reference rate for the yuan to 7.0531 per dollar, eyeing the key 7 level.

While Monday’s cut reflected a catch-up from a 10-basis-point July cut in the seven-day rate, easing measures were likely imminent, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

“I expect the PBOC to cut the 7-day repo rate as well as the reserve requirement ratio in the coming months,” he added. “There is a press conference tomorrow when financial regulators will shed light on their policy position.”

China has another chance to lower the cost of its one-year policy loans on Wednesday. In July, the PBOC cut the seven-day reverse repo rate days before cutting the medium-term lending facility by the most since April 2020.

The decision to cut the 14-day rate to 1.85% from 1.95% came ahead of the National Day Holiday, which will last for seven days from October 1. The PBOC usually offers 14-day loans before the long break. The last time it offered such loans was in February, before the week-long Lunar New Year holiday.

The central bank also injected 74.5 billion yuan ($10.6 billion) of liquidity into the banking system through the tool, it said in a statement.

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“A 10bp cut alone is not enough to stop the economic slowdown,” said Raymond Yeung, ANZ Greater China chief economist. “A bigger package is needed. Other policy measures in the toolbox such as the RRR cut, the MLF cut and the mortgage rate cut are likely to be announced.”

–With the assistance of Wenjin Lv, Iris Ouyang and Josh Xiao.

(Updates with details, analyst commentary.)

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