© . FILE PHOTO: A woman walks past the headquarters of the People’s Bank of China central bank in Beijing, China, Feb. 3, 2020. REUTERS/Jason Lee SHANGHAI/BEIJING () – China’s central bank plans to ease monetary efforts , but a large majority of market participants in a poll conducted on Thursday believe the central bank may choose not to cut borrowing costs for its medium-term policy loans this week. Instead, markets are increasingly anticipating an imminent reduction in the amount of cash banks must put up as reserves, after the State Council or cabinet on Wednesday called for the timely use of such monetary instruments. Activity in the world’s second largest economy has slowed since early 2021 as traditional growth engines such as real estate and consumption faltered. More recently, widespread disruptions from COVID-19 outbreaks and severe lockdowns have tilted the odds of a recession, a pair of economists say. Still, 31 out of 45 traders and analysts, or nearly 70% of all participants surveyed, predict no change in the interest rate on the one-year medium-term loan facility (MLF) when the central bank extends 150 billion yuan ($23.57 billion) of such loans. on Friday. Of the other 14 respondents, eight predicted a marginal 5 basis point (bps) cut, while the remaining six believed a 10 bp cut would be more likely. “Citi economists’ base case is a 50 bps wide-based reserve requirement (RRR) cut to be confirmed as early as April 15, freeing up more than 1.2 trillion yuan in liquidity,” the US investment bank said in a note. , adding that a cut could reduce the likelihood of an imminent MLF rate cut. Some investors also argued that more aggressive monetary easing in China, such as cutting both the RRR and key policy rates, would further divert its policy stance from other major economies, which have tightened, and potentially trigger more capital outflows. The interest rate premium between China and the United States has been wiped out this week. “The situation could become more uncertain in the event of greater pressure on capital repatriation and deteriorating (yuan) sentiment later this year,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank. Lockdowns in the financial center of Shanghai and dozens of other cities to curb the rapid spread of COVID-19 have shaken markets and raised concerns about wider disruptions to economic activity, leaving policymakers with no choice but to increase incentives. to ensure the economy is on track to meet the growth target of around 5.5% for this year. However, some economists say credit easing may not be enough to quickly reverse a deep economic downtrend as businesses and consumers are in no mood to borrow money given the uncertain outlook. ($1 = 6.3660 renminbi)
