PBoC avows more rate cuts to offset coronavirus impact, says ANZ Research

The deputy governor of the People’s Bank of China (PBoC), Chen Yulu, elaborated on recent monetary policy measures at a press conference held by the State Council on Monday, February 24. He outlined three measures to shore up the next stage of growth. They are:

1. A rate cut to lower funding costs for small businesses, agriculture, and start-ups.
2. Structural monetary tools, including more relending/rediscount quotas and the annual dynamic assessment of targeted required reserve rate (RRR) cuts for inclusive financing.
3. Support for policy banks, including the China Development Bank (CDB), the Export-Import Bank of China (EXIM) and the Agricultural Development Bank of China (ADBC).

The rate cut likely refers to a cut in China’s benchmark deposit rate. Taking into account the current stock market rally, the PBoC will choose the timing and magnitude of the cut carefully. Banks had around CNY100 trillion of liabilities linked to the benchmark deposit rate as of end-2019, according to the latest report from ANZ Research.

The annual dynamic assessment of targeted RRR cuts for inclusive financing will likely release about CNY500 billion in long-term funds to offset the demand for liquidity arising from corporate tax payments.

"We predict that a cut could be announced as early as this Friday, February 28. Based on the financial reports of publicly-listed banks, at least three state banks, two joint equity banks and three city banks will enjoy an additional 100bp cut in their RRR," the report further commented in the report.