China Policy rate cut, helpful but not that helpful

This rate cut is expected, but, the PBoC did not liberalise deposit rates further. The maximum rate that banks can offer is 3%, down from 3.375%. 

However, most of the banks, especially the big ones, already set their rates below 3% before the cut. Hence, the resulted decline in deposit rates, on average, is likelyto be limited.

However, the effectiveness of this tool is diminishing. The transmission mechanism is that banks will be forced to lower the rates on their outstanding loan contracts at the time of roll-over, but they have no obligation to adjust the rates accordingly for new lending. 

The determinants for new lending are interbank liquidity conditions and banks' risk appetite. The former has eased meaningfully since late Q1, but the latter has hardly improved.