In the wake of Friday’s People’s Bank of China (PBOC) rate cut, Goldman Sachs think the central bank is more likely to use further liquidity injections instead of additional rate cuts.
In summary from GS (HK research):
- PBOC wants to maintain growth at “lowest possible cost” in terms of risk of excess liquidity
- PBOC’s rate cut having limited impact on growth
- Expects PBOC to push down interbank interest rates through more “nimble” market injections (eg, , such as medium-term lending facility (MLF) as the primary policy option … medium-term is around 3 months or so)
Other measures expected:
- Expansion in loan quotas
- Easing in regulations
GS don’t see further interest-rate cuts in near term; says household disposable income would be compromised, and there would be risk of greater pressure on deposit outflows
- Don’t foresee a system-wide RRR cut in near term, although risk has risen; says this would represent even more visible shift toward easing mode
