China’s central bank prepares for rate cut

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The People’s Bank of China is expected to cut the policy rate at its meeting on Friday. The bank is also expected to lower reserve requirements to support the economy affected by the lockdowns.

According to a Bloomberg survey, 16 of 22 economists expect the Central Bank to lower the reference rate for one-year loans. 12 economists expect a 10 basis point cut. The said interest is at the level of 2.85%.

The Chinese cabinet gave rise to expectations of a reduction in required reserve ratios yesterday after the Central Bank’s announcement that they would use policy tools, including reductions in required reserve ratios, if necessary.

Required reserves were last reduced in July and December meetings, following similar statements by Prime Minister Li Keqiang last year.

Citigroup expects to inject 1.2 trillion yuan ($188 billion) into the market with a massive 50 basis point cut in reserve requirements. Nomura and Goldman Sachs also foresee similar size reserve requirement reductions.

China has taken quarantine measures in many regions, including the financial center Shanghai, especially within the scope of its “zero Kovid” policy. While many organizations have revised down the country’s 2022 growth forecasts, the Chinese government has promised more fiscal and monetary stimulus to support the economy.

China Stock Exchanges rose on expectations of a rate cut at tomorrow’s meeting.

CSI 300 Index rose by 1.9 percent, while consumption shares led the rise. Onshore yuan and 10-year bond yields were flat.

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