JPMorgan Econ FI-China The PBOC unexpectedly cut MLF rate by 20bps-109415169

AsiaPacificEconomicResearch25July2024JPMORGANwww.jpmorganmarkets.comEmergingMarketsAsia,EconomicandPolicyResearchHaibinZhu(852)2800-7039haibin.zhu@jpmorgan.comGraceNg(852)2800-7002grace.h.ng@jpmorgan.comTingtingGe(852)2800-0143tingting.ge@jpmorgan.comJiYan(852)2800-7673ji.yan@jpmorgan.comJPMorganChaseBank,N.A.,HongKongBranchFollowingtheearlier-than-expected10bpcutinthe7-dayreversereporate,1-yearand5-yearLPRrates,andSLFrates(link)onMonday(22July),today(25July)thePBOCloweredthe1-yearrateonmedium-termlendingfacility(MLF)by20bpsto2.3%andprovided200billionyuanviaMLFoperation,inanunexpectedmove.Meanwhile,followingtheLPRcuts,majorSOEbanksinChinaannounceddepositratecutstoday,witha10bpcutfor3-month,6-monthand1-yeartimedeposits,anda20bpcutfortimedepositsof2-year,3-yearand5-yearduration.Inthebroadpicture,thePBOC’sratecutdecisionsthisweekisacounter-cyclicalpolicyactioninresponsetothelatestdevelopmentsintheChineseeconomy:2QGDPgrowthcameinweakerthanexpectedandgrowthmomentumslowednotably(from7.4%to1.0%q/qsaar,basedonJPMestimates).Inparticular,domesticdemandremainedweak,andtheGDPdeflatorhasstayednegativeforthefifthconsecutivequarter.Ontheexternalfront,benigninflationreadingsintheUShavebroughtforwardmarketexpectationsfortheFedratecut(ourUSeconomistforecaststhefirstFedratecutwillbeinSeptember),leadingtolowerUSTyieldsandmitiga...