Mar 02, 2015

China's Rate Cut Sooner Than Expected

Over the weekend, the People’s Bank of China (PBOC) announced interest rate cuts of 25bps in both benchmark lending and deposit rates. Though the rate cut came as no coincidence with the slowing of China's economy, the surprise was in the timing - it was much sooner than anticipated.

Over the weekend, the People’s Bank of China (PBOC) announced interest rate cuts of 25bps in both benchmark lending and deposit rates. With the slowing of the world’s second largest economy, the cut is being relied on to stimulate activity and came as no coincidence. The surprise was in the timing – it came much sooner than expected and it was only a month ago that PBOC responded against deflationary pressure with an RRR cut.

In addition, the deposit rate pricing further deregulated to 1.3x (from 1.2x) PBOC benchmark rates. The widening of the deposit rate pricing range comes as a surprise, as the last deregulation took place only three months ago when the PBOC cut rates in November 2014. It had taken the PBOC more than two years to lift the deposit rate pricing ceiling to 1.2x from 1.1x. We maintain our positive view of Chinese banks and Insurance based on ample liquidity and further policy easing.

China’s National People’s Congress (NPC) are meeting this week to discuss their fiscal policy. Once the Government sets policy, we will have an updated blog with more information.

Check back for updates.