China | What do we expect of China’s policy rate in 2022?

Summary

The PBoC cut MLF, repo rate and LPR recently to stimulate growth, but it does not indicate China will start a massive easing cycle.

Key points

• Key points:
• Amid the recent economic growth slowdown, after the PBoC announced the cut for MLFrate and repo rate by 10 bps on August 15th, the authorities cut the LPR asymmetrically today as LPR is artificially linked to MLF plus some adding points.
• China’s interest rate cut indicates again the PBoC unsynchronized its monetary policy with that of the main economies in the world.
• The interest rate cut has more signal effect than real effect which is not enough to alter the growth headwinds.
• In addition, the policy room for further monetary easing measures is also limited. The PBoC has to closely monitor RMB exchange rate and capital outflows to make further moves.
• We believe today’s interest rate cut does not suggest a start of China’s massive easing cycle amid the US FED interest rate hike. We only predict at most another asymmetric cut in the rest of the year.

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