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The People’s Bank of China (PBoC) is expected to cut benchmark lending rates twice by 25bp each in Q1 and Q2, possibly as early as around February 1, according to the latest report from Barclays Research.
The dovish tone and proactive stance exhibited by the PBoC in January underscore significant downward pressure on growth from both weak domestic demand and a rapid deterioration in the external environment, as evidenced by plunging global PMIs, emerging deflation risks and expectations for further declines in Jan-Feb activity data.
In this respect, while RRR cuts have lowered banks’ funding costs and targeted easing measures have supported credit growth, average loan rates have remained elevated despite falling interbank rates and bond yields.
"We think credit growth, effective lending rates and credit spreads are useful indicators to evaluate the PBoC’s success. With credit risk premiums likely staying elevated, we believe lowering the risk-free rate is an unavoidable option," the report added.
