Market not expecting a China LPR cut today but it's in play
China's central bank decision is today
All the talk ahead of Wednesday revolves around the Federal Reserve but there's a chance the PBOC could also make a move. If so, it would be a much bigger market mover.
At 9:30 pm ET (0130 GMT), officials will publish the decision on the 1-year and 5-year loan prime rates, which are at 3.85% and 4.65% respectively.
Those benchmark rates have been unchanged for 16 months and there's a solid consensus they won't be lowered this week.
Speculation cooled after comments from PBOC vice governor Pan Gongsheng and head of monetary policy Sun Guogeng on Sept 8 said there is no big shortfall of base money, and liquidity supply and demand will remain basically balanced in coming months. Gongsheng also said the central bank will maintain prudent monetary policy.
A poll this week from Reuters showed 19 of 20 economist polled expecting no change with the lone outlier forecasting a 5 bps cut in the LPR.
Speculation also cooled after the a rollover in about $93 billion in MLF loans earlier this week at unchanged rates.
Still, the PBOC will have no doubt recognized the pressure that China's woes are putting on domestic and international markets. As they showed with a surprise RRR cut in July, they're also not afraid of moving when the market isn't expecting it.
Recent data from China has been poor with retail sales rising 2.5% y/y compared to 7.0% expected and 8.5% the month prior. Industrial production has also been soft and the official non-manufacturing PMI is well into contractionary territory at 47.5.
Economists have repeatedly lowered estimates for growth with Nomura in August trimming a full percentage point from Q3 and Q4 estimates. Just today, Bank of America cut its full year forecast to 8.0% from 8.3% and slashed 2022 to 5.3% from 6.2%. Goldman Sachs hinted at something even worse saying that 5-6% growth would be difficult next year because of property market questions.
This all takes place within the context of the looming bankruptcy and restructuring of Evergrande. China is likely trying to engineer a soft landing in real estate but by allowing the company -- the 2nd largest real estate firm in the country -- to collapse they risk a harder fall. At the same time, if they ease too much or too quickly they could underscore a PBOC put.
In the LPR decision, the PBOC doesn't offer any color or statement. For more see the economic calendar.