PBoC likely to cut the policy rate by 25bps in Q1

China's manufacturing and services PMI declined in January, although marginally as compared to December's print. Electricity production and crude steel output were seen weak in January, suggesting deleveraging process going on in the industrial sectors. Further downward pressure weighs on bulk commodity prices as China initiated an aggressive capacity reduction across several sectors.

China's monetary policy is likely to remain extremely accommodative, while fiscal policy is expected to stay proactive as the economy is expected to set the growth target within 6.5-7.0% range in 2016. Further, the fiscal deficit is anticipated to be raised to 3 percent of GDP in 2016, as compared to 2.3 percent in 2015.

"We believe that the PBoC will cut the policy rate by 25bps in Q1, and conduct several cuts in reserve requirement ratio (RRR) this year" - Commerzbank