SHANGHAI — China’s central bank kept its main policy rates on hold on Thursday, opting not to follow an overnight benchmark rate cut by the US Federal Reserve as policy makers wait to see if earlier support measures start to stabilize the economy.
But market watchers say continued support is still needed, and expect more modest forms of policy easing from the People’s Bank of China (PBoC) in coming months if pressure on the economy persists.
Amid mounting worries about risks to global growth, the Fed lowered its benchmark rate by a quarter-point on Wednesday, as expected, but the head of the US central bank ruled out a long series of cuts.
Though China’s central bank does not always follow the Fed’s moves in lockstep, some analysts had thought a token PBoC cut, likely in one of its short-term rates, was a possibility.
However, no move was apparent by midday on Thursday. The PBoC refrained from daily open market operations (OMOs) early in the session, saying banking system liquidity was “reasonably ample”.
“The PBoC skipped OMOs and hence there was no rate adjustment,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore.
“The market may need to wait until mid-August when the next tranche of medium term lending facility matures to see if there is any action. Arguably they can adjust policy parameters anytime, and are not constrained by any meeting schedule, but we see no pressure on OMO rates.”
China’s central bank has already been quietly guiding borrowing costs lower over the past year, mainly through hefty liquidity injections. Last week, it shifted more funds into a lower-cost, medium-term lending scheme aimed at helping struggling smaller firms.
While heading off a sharper economic slowdown remains Beijing’s top priority, officials fear easing too aggressively could fuel debt and financial risks, according to government advisers involved in internal policy discussions.
Central bank governor Yi Gang also said recently that current interest rate levels are appropriate.
Further cuts in banks’ reserve requirement ratios (RRR) are seen in both this quarter and next to direct funding to parts of the economy that need it most. The PBoC has already cut RRR six times since early 2018.
The PBoC has not cut its benchmark lending rate since the last downturn in 2015. — Reuters
