Citi on the PBoC. I don’t think that the PBoC can cut until it is certain that the Fed is done. I agree with the consumption-led recovery though I worry that the Chinese household will under-deliver as it usually does.
Targeted monetary policy efforts with demand expansion in focus —ThePBoC vowed to keep its prudent monetary policy “accurate and forceful”. It would“solidify sustainable intensity of the support for the real economy”. It pledged an“effective growth of credit aggregates” to support consumption, investment, and employment. Structural policy tools would be more focused on inclusive finance, technology & innovation, and green development. The PBoC looked at the lasting effect from interest rate reforms to drive lending rate down and would “guide market rate to fluctuate around policy rate”.
Limited room for interest rate as global hike cycles extends —In its review of the past five years, the PBoC mentioned that the focus of monetary policy was on the domestic side, and it managed to guide interest rate down despite limited room for rate cut amid a global hike cycle. Average loan rates hit another all-time low last year. Interest rate for corporates dropped to 3.97% in December 2022 from the high point of 5.6% in 2018. Mortgage rates also dipped to 4.26% from 5.75% (Figure 1).
