China: Three rate cuts, one adjustment – ING

According to Iris Pang, Economist, Greater China at ING Bank, there could be more monetary policy moves by the People’s Bank of China (PBOC) in the pipeline after the recent rate cuts by the PBOC is really seen just one move to adjust the yield curve. 

Key Quotes:

“The People's Bank of China controls several interest rates and has cut most of them by five basis points. But the maturities have all been different, meaning that we've really seen just one move to adjust the yield curve. Will there be more? 

"Data-dependent" monetary policy is quite unusual in China because most of the time, the PBoC seems to have an interest rate path in mind for the year ahead. But the trade war has changed how the central bank projects its policy. 

A positive outcome from the trade war would mean the central bank can stay put on monetary policy, but the reverse will mean it needs to loosen further.

Aside from its interest rate policy, the PBoC also has a policy of managing liquidity. Cutting the reserve requirement ratio is a major tool here. Others include the injection or absorption of cash in the interbank market via the MLF and daily open market operations.”