Chart Of The Day - China Rate Cut

PBOC cuts rates, bullish EM equities, commodities, risk assets...

China Monetary Stimulus: The People’s Bank of China just announced a -15bp cut to its “MLF Rate” (medium-term lending facility) — it typically projects cuts in its official benchmark policy rate (the LPR or Loan Prime Rate) via changes in the MLF rate, so we should expect a cut to the benchmark rate when it is next reviewed (usually the 20th of the month).

• WHY: the PBOC faces a classic case for rate cuts; price data is deflationary, property market is in a downturn, reopening bounce has completely faded, macro data weakening, global growth also softening. Simple and clear cut case for stimulus.

• WHAT’S NEXT: as I pointed out in my “10 Charts to Watch in 2023”, not only is this to be expected, but they should be doing more (at least another -100bps). But like all good central banks, they will be data-dependent.

• SO WHAT: if they follow-through with more forceful stimulus that will be bullish for China/EM equities, commodities, and risk assets in general.

• (n.b. the chart below substitutes in the MLF rate cut to the main benchmark rate)

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