The People’s Bank of China (PBOC) is expected to continue to cut the amount of cash that banks must hold as reserves further in 2019 while keeping interbank borrowing costs largely steady even amid tightening US Federal Reserve policy, according to a survey.
As part of efforts to shore up the slowing economy, the central bank will cut the required reserve ratio by another 150 basis points, in addition to the 100 basis point cut announced last week, according to a survey of 18 bond traders and analysts conducted between December 24 and January 9.
The PBOC will also likely tweak the cost of interbank lending slightly lower for the first time since 2015, taking the rate on 7-day reverse repurchase agreements to 2.45 percent by the end of 2019 from the current 2.55 percent, according to the median estimate in the survey. The rate will be cut by 5 basis points in the second quarter and another 5 basis points in the third quarter, participants said. The easing measures altogether will drive gains in government bonds, with the 10-year sovereign yield dropping to as low as 2.8 percent this year, compared with about 3.1 percent now, the survey showed.
Eight of the respondents see a cut in the benchmark deposit and lending rates this year, though the consensus is for no change. China’s central bank has made multiple tweaks to policy settings in recent months to keep interbank funding abundant, with the aim of enabling support to private and small businesses.
Still, there’s little sign that the incremental easing has turned around sentiment in the real economy, which could register the slowest growth in nearly three decades in data scheduled for release later this month. Policy makers may hammer out additional easing measures in early March when they gather for the National People’s Congress meeting in Beijing.
The Chinese central bank will start lending money to banks under a new policy instrument in late January, the governor announced in an interview, promising that China will avoid both massive stimulus and a fast credit contraction.
The targeted Medium Term Lending Facility, which lends cash for up to three years, was announced in December and will encourage banks to lend to small and private compa-nies which are facing credit shortages due to a government debt crackdown.