China stimulus hopes rise as PBOC cuts rates, plans briefing

(Bloomberg) — China said it plans to hold a rare economic briefing with three top financial regulators just as it cut one of its key short-term rates, fueling speculation that authorities are preparing to step up efforts to revive growth.

Authorities said Monday that central bank Governor Pan Gongsheng would hold a news conference tomorrow on financial support for economic development, along with two other officials. Minutes later, the People’s Bank of China cut the reverse repo rate to 14 days, part of cuts that began in July.

The moves taken together reinforce expectations for a rate cut by the PBOC, after the U.S. Federal Reserve finally began cutting rates last week. China’s central bank has also recently signaled it is preparing additional measures. A disappointing run of data in August raised concerns that China could miss its annual growth target of around 5% without additional support.

China’s 10-year government bond yield fell 1 basis point to a new low of 2.03%, a sign that traders are anticipating more monetary stimulus. In the foreign exchange market, the PBOC raised its daily reference rate for the yuan to 7.0531 per dollar, putting the key 7 level in sight.

Although Monday’s cut reflects a catch-up from a 10 basis point cut in the seven-day rate in July, easing measures are likely imminent, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

“I expect the PBOC to cut the 7-day repo rate and the reserve requirement ratio in the coming months,” he added. “There is a press conference tomorrow where financial regulators will clarify their policy stance.”

China has another opportunity to cut the cost of its one-year loans on Wednesday. In July, the PBOC had already cut the reverse repo rate to seven days a few days before cutting the medium-term lending facility rate, the biggest cut since April 2020.

The decision to lower the 14-day rate from 1.95% to 1.85% came ahead of the national holiday that will last seven days starting October 1. The PBOC usually offers 14-day loans before a long break. The last time it extended such loans was in February, before the weeklong Lunar New Year break.

The central bank also injected 74.5 billion yuan ($10.6 billion) of liquidity into the banking system through the tool, it said in a statement.

“A 10bps rate cut alone is not enough to stem the economic slowdown,” said Raymond Yeung, ANZ’s chief economist for Greater China. “A bigger package is needed. Other policy measures such as reducing the cash reserve ratio, reducing the buffer rate and cutting mortgage rates are likely to be announced.”

–With assistance from Wenjin Lv, Iris Ouyang, and Josh Xiao.

(Updated with details, analyst comment.)